Cashflow planning: What is it and how could it help you retire with confidence?

Retirement is one of the most significant milestones in your life, which is why planning for it can feel so overwhelming.

Indeed, you might find it challenging to picture how much money you’ll need to live the lifestyle you want, or whether your current savings will be enough when you stop working.

If you have ever felt this way, you’re not alone. Research from FTAdviser shows that around 30% of UK adults have no plan for how they’ll fund their retirement, and 46% of people without a plan admit they’re worried about running out of money.

You might not have a clear picture of your ideal retirement, how much you need to accumulate to achieve it or the changes you should make now to stay on track.

Thankfully, cashflow planning can be a powerful tool in helping you visualise – and reach – your targets with confidence.

Read on to find out exactly what cashflow planning is and how it can remove some of the guesswork from retirement.

A cashflow model projects your income and expenditure so you can plan for the next phase of life

Cashflow planning helps you understand your current and future finances and assess whether you’re on track to achieve your goals.

We will start by inputting data about your current financial situation into sophisticated modelling software. This might include your:

• Income
• Savings
• Outstanding debts
• Investments
• Protection costs
• Pension contributions
• Mortgage or rental costs.

It’s worth noting that the quality of the model depends on the accuracy of the information you provide. The more complete the data, the more realistic the model tends to be.

Once we’ve entered this data, the software uses it to project your income and expenditure year by year, factoring in inflation, investment returns and your expected retirement age.

These projections allow you to see how your finances might evolve and whether your wealth will be enough to sustain your desired lifestyle.

If you already have a specific age in mind for retirement, the model can even test whether this is achievable. If not, it can help you determine what changes are needed to make it achievable.

There are several significant benefits to building a cashflow model with us

As you can imagine, having such an accurate model of your financial situation can be incredibly beneficial. Here are five reasons why.

1. It allows you to understand your current finances

Cashflow planning helps you take stock of your complete financial picture. You can see exactly what you earn, what you spend and what you’re setting aside for the future.

Gathering your assets and ongoing commitments into a clear, unified view helps you see where your money is going and how effectively it’s working.

This often highlights opportunities to work more efficiently towards your long-term goals.

2. You can project your retirement income needs

One of the more practical benefits of cashflow planning is its ability to project how much income you may need once you retire.

Everyone’s plans for the next phase of life are different. Some want to travel the world, while others simply want to spend more time with loved ones.

Cashflow modelling software allows you to input your retirement goals and provides a realistic estimate of the income needed to maintain that lifestyle.

This can help you see whether your existing pension contributions and investments are on track to support it.

3. You may be able to identify and address potential shortfalls

When you compare your projected income with your expected spending, you may quickly discover areas where there’s a gap between what you’ll need and what you currently have.

Identifying shortfalls early could give you the time needed to take action.

Indeed, you could adjust your retirement age, review your investment portfolio or increase your contributions to close any gaps.

We could test different scenarios to help you find the right balance between your lifestyle goals and your financial security.

4. It allows you to prepare for the unexpected

Life is unpredictable. Market downturns, career changes or unexpected expenses can all affect your finances.

Cashflow modelling lets us test how your plans perform under different scenarios, so you can see their potential effects before they occur.

You might even find you’re more confident about building an emergency fund and reviewing your protection policies when you understand how resilient your finances are.

5. You can plan how to use retirement savings sustainably and tax-efficiently

It’s just as important to know how and when to draw from your pension fund as it is to build it in the first place.

As such, cashflow modelling can show more sustainable ways to withdraw from your various income sources while keeping tax in mind. This might include:

• Pensions
• Investments
• Individual Savings Accounts (ISAs)
• Savings accounts
• Property wealth.

Carefully timing your withdrawals can significantly affect how long your money lasts.

For instance, you might decide to leave wealth in a Stocks and Shares ISA to keep growing, choosing instead to draw on your pension wealth. This is especially relevant because, from April 2027, most pensions will no longer be exempt from inheritance tax.

While we can help you identify tax-efficient opportunities, tax planning is often best handled by qualified accountants.

Working side by side with our tax expert colleagues in Francis Clark LLP, we can ensure that all aspects of your pension tax plan align properly.

We can help you build an accurate projection of your retirement

Our goal at Francis Clark Financial Planning is to give you confidence in your future. Whether you’re approaching retirement or just want to know what’s possible, we use sophisticated cashflow modelling to help you make informed decisions at any stage of your life.

You may even find that your situation changes significantly as you progress through life. For example, you might sell your business, receive an inheritance or go through a divorce.

Regular reviews can ensure your plans remain current and that your cashflow model continues to reflect your circumstances.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate tax planning or cashflow planning.