You may already understand just how beneficial financial planning can be in helping you achieve your long-term goals.
Whether it’s ensuring you are adequately protected from life’s unexpected challenges, funding your children’s higher education, or setting yourself up for a fulfilling retirement, financial planning can give you some much-needed structure and direction.
Yet, retirement planning could come with its own set of unique challenges.
Indeed, you may not have a clear picture of what your ideal retirement lifestyle looks like, how much you will need to accumulate to sustain it, or the monthly contributions you should make to avoid falling short.
This is where cashflow modelling can be a useful tool for your financial future, as well as for your emotional wellbeing.
Cashflow modelling allows you to input data about your current financial situation and future aspirations to show how your wealth will change visually. Some of the information you provide might include your:
- Current and future income
- Savings
- Outstanding debts
- Investments
- Protection premiums
- Pension contributions
- Other key outgoings, such as your mortgage or rent.
By giving you a detailed view of your future finances, cashflow modelling provides clarity, helps you make informed decisions, and offers reassurance that you are on track.
So, continue reading to discover three practical ways cashflow modelling could benefit your retirement plans.
1. It may help you map out your long-term goals
A helpful first step when preparing for retirement is determining what you want the next phase of your life to look like.
It’s vital to recognise that there’s no “one size fits all” figure for retirement savings. While the Retirement Living Standards does claim that a couple might need around £43,900 a year for a “moderate” retirement or £60,600 for a “comfortable” one, these are only general guidelines.
Your needs will wholly depend on your goals, tolerance for risk, and time frame.
This is where cashflow modelling becomes beneficial. Together with your planner, you can sit down and have an in-depth discussion about what you want to achieve in retirement.
Whether you wish to spend time travelling the world, renovating your home, or simply enjoying more moments with your loved ones, a useful first step is to clearly define these goals and how much they might cost you.
Once you’ve done this, you and your planner can use cashflow modelling to input these estimated costs, as well as any details of your income, assets, and outgoings.
This could enable you to map out these goals against your financial situation.
Having this information set out visually, rather than just floating around in your head, can make a significant difference, too.
Indeed, you may find you’re more able to rearrange your priorities, identify new activities or experiences you wish to pursue, or simply feel more confident that you’re preparing effectively.
2. It could help you identify saving shortfalls
Once you’ve mapped out your goals, cashflow modelling can also help you identify whether you’re on track to meet them, or if there are gaps you need to address.
Your planner can then assess how this information aligns with your desired long-term outcomes while highlighting potential shortfalls.
Then, you could explore strategies tailored to your personal needs. For instance, you might secure more competitive rates on savings accounts, or you could review your debt to clear it sooner.
Moreover, you may want to consider using tax-efficient savings vehicles, such as ISAs, or increasing your pension contributions to manage your Income Tax liability.
This could enable you to create a more streamlined path towards your long-term goals, allowing you to secure the retirement lifestyle you’ve always dreamed of.
3. It could prepare you for the unexpected
Just because you’re retired, doesn’t mean life’s uncertainties disappear. In fact, you may face additional challenges – such as falling seriously ill and needing to fund private care, or a need to support unwell loved ones – that will affect your income needs.
Even external factors, such as periods of high inflation or sudden market downturns, can significantly affect your financial plan.
Cashflow modelling can give you the ability to account for these “what if?” scenarios well in advance.
For example, you could explore some of the potential effects of a period of high inflation on your wealth and anything you could do to manage this.
The cashflow model might also help you determine the appropriate levels of financial protection for your situation.
Perhaps most importantly, this level of planning can offer some emotional reassurance, giving you peace of mind that your future is secure even if life throws unexpected challenges your way.
Knowing that you’ve prepared for any possibility could help you feel more confident, allowing you to enjoy your desired lifestyle rather than worrying about what might go wrong.
Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Get in touch
We could help you build a comprehensive cashflow model that allows you to plan for your perfect retirement.
To find out more, please contact us by email at info@investmentsense.co.uk or call 0115 933 8433.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate tax planning or cashflow planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
