With many things to consider as you approach retirement, cash-flow modelling can be key to helping make the right decisions.
When you start to plan for your retirement, there are a number of questions you will be considering:-• when do I want to retire?
• When can I afford to retire?
• Should I semi-retire first?
• What income will I need?
• What will be my expenditure?
• Will my lifestyle have to change?
The uncertainty in your financial outlook can always shift, especially when you come up to retirement and therefore the use of long term cash flow planning to project expenditure and your income needs can help future-proof your finances.
You may not wish to extend your working life to fully protect against future financial challenges so you made need to think about how stopping or reducing work will impact your lifestyle and spending habits. Working out your expenditure is essential so you can establish your income needs and where this is to come from such as earnings from work, state pension, private pension and other investments and savings. When assessing expenditure, it is certainly worth
considering what is essential and discretionary spending in case financial resources change.
Cash flow projections pull together these possible expenditure and income outcomes to show whether you are likely to have a deficit or a surplus over your expected lifetime. A surplus could allow you to increase your expenditure, such as making gifts to your family or increasing luxury spending.
A deficit forecast may mean that you should consider your spending plans and see where you could make cost savings. As an alternative, if you have the choice you may wish to rethink your retirement date or focus on increasing pension contributions or other savings.
Long-term cash flow modelling has grown into one of the most valuable planning tools and we recommend that this is something you seriously consider as you approach retirement.
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