Transcript
Welcome to the transcript of our video, An overview of cashflow planning. This page provides the full text version of the content, making it easy to read, reference, or search through specific topics covered in the video. Whether you prefer reading over watching, want to quickly scan for information, or need an accessible alternative to video, this transcript is here to help.
Introduction
Cashflow planning is a great tool to help us simplify the complex.
As Simon outlined, once your information has been gathered and your goals have been established, we can use cashflow software to help illustrate your specific financial future.
For many people, this may be the first time they’ve ever seen their future illustrated in this way and how their assets can help achieve their goals and aspirations.
Example Scenario
I have an example here to show you today.
The couple are in their mid-fifties and running along the bottom of the chart are their ages projected forward until age 100 with each column showing a year.
At the side of the graph, we have the values of their inflows, such as their earnings, rental, or pension income.
Understanding Income and Expenditure
The black line tracking from left to right is their total expenditure requirements per year and includes items such as normal expenses, mortgage costs, children’s university costs, tax, and so on.
While they’re working, their total expenditure is approximately 250,000 pounds each year, and on top of the inflow column is greater than the expenditure black line. This shows their inflows from all income sources is greater than their expenditure, which leads to a surplus.
Retirement Objectives
Their objective in retirement is to have a net expense of a hundred thousand pounds each year after tax.
Their mortgage will have been repaid at this point, and their children’s university costs will have also finished.
At retirement, we can see their inflows from rental and other income is not enough to meet this a hundred thousand pound requirement, and this difference will now need to be met from other assets.
Using assumed rates of inflation, we can also plan for this yearly expenditure to increase until age 100.
Income Sources in Retirement
Here we can see the state pension starting in dark blue is added to the rental income, although to meet their expenditure goals, the difference will still need to be met.
The Couple’s Balance Sheet
On this next slide, we can see the couple’s balance sheet, and this is all the assets they own, including their main residence in the dark blue, rental property in the light blue, cash savings ISAs and SIP pensions.
The investment portfolio in this instance is shown here and is where expenditure is funded from in retirement, as I had outlined on the previous chart.
You’ll see here that in this case as a UK resident, we will also be using part of their investment each year to fund ISAs to make more of their investments tax free.
Long-Term Wealth and Succession Planning
Simon mentioned earlier that many of our clients run the risk of dying with too much money and in this instance, we can see that the clients even at age 100 still have significant assets left.
We can therefore speak with them about whether they wish to spend more or start discussions about planning for succession such as gifting money to children or charity during their lifetime.
What is clear in this example is by having over 8 million pounds left when they pass at age 100, is that a significant inheritance tax liability is likely based on the current legislation and shows that we can help the client mitigate that by estate planning.
Tax-Efficient Withdrawal Strategy
From here, our wealth planners will help identify the most tax efficient ways to draw money down from there for various investments and assets and make use of current allowances, exemptions, and structures available.
This is a very high-level plan and we can delve into much more detail if required on your investments.
Reviewing and Stress Testing the Plan
We also know that this is only one of a multitude of potential outcomes over 40 years, and we’ll review your investments annually, adjusting the plan accordingly to make sure that you remain on track.
We’ll also run various scenarios with you. For example, we can assess the impact of taking more or less risk with your investments, different spending needs, making large gifts to children for property purchases, and visually you’ll be able to see the effect these changes could have on your financial future.
Importantly, we stress test your plan to ensure a high probability of its success. This will include putting in a period of market decline to see how this affects your assets and to test if there’s any impact on your financial success or not.
Conclusion
Ultimately, your wealth plan is completely bespoke to you and your financial future.