4 useful ways cashflow modelling could help you get more from retirement
01/04/2022Recent research by Aviva makes for interesting reading. It found that a quarter of Britons who aspire to retire early do so at the age of 60, and 68% said they were happier because of it.
That said, the study also found that nearly half (47%) said stopping work earlier had affected their finances, with 24% of those who later returned to work saying they did so because of financial issues.
The research shows the importance of understanding whether you really can afford to retire and, if you can, what sort of lifestyle you can expect. One way you can do this is through cashflow modelling.
As well as providing peace of mind that you will be financially secure once you retire, it could also show that you can afford to finish work earlier than you originally planned.
Furthermore, it could highlight that you need to boost your pension some more before retiring, as not doing so could cause financial problems later.
Discover four times we use cashflow modelling to produce bespoke reports that are tailored to your circumstances, which help you make important retirement decisions at different stages in life.
1. Approaching retirement
Typically, the two most important questions as you approach retirement are: how much income will your pension generate, and will your pension pot last for as long as you do?
Cashflow modelling allows us to produce individually tailored reports that answer both of these questions. This could include calculations that we produce to help you understand the lifestyle you can expect in retirement or semi-retirement.
By using this bespoke information, we can create the right financial strategy for you. For example, by looking at the average rates of inflation and the average growth rate of specific investments, we can predict the effects of your lifestyle on your pension pot.
This allows us to understand whether your standard of living is likely to be sustainable over the long term. As a result, you can retire or semi-retire safe in the knowledge you can spend money and enjoy your retirement without the risk of depleting your retirement fund.
Alternatively, if you cannot afford the lifestyle you want, the bespoke report allows us to create an effective strategy that could help you achieve it.
2. During retirement
For those already in retirement, cashflow modelling means we can confirm whether you’re spending enough! While this may sound counter-intuitive, some retirees do not enjoy the lifestyle they can actually afford because they’re unsure how much income their pension pot will generate over the long term.
The projections provided by cashflow modelling allow us to calculate whether you could, and potentially should, be spending more. This might mean a better standard of living with more holidays, or the ability to update your house without the risk of depleting your pension pot later on.
As a client of Douglas White, it’s highly unlikely you will deplete your pension pot, as we will have worked with you to ensure your income is appropriate to your retirement fund.
That said, you may know someone who is retired and may benefit from a conversation with us about cashflow modelling. If so, we would be happy to help.
3. Planning for retirement
Using a cashflow model can be extremely useful if you are in your 40s or 50s and planning ahead for your retirement. This is because it provides information that we can use to create a report and retirement strategy that’s individually tailored to you.
For example, we can calculate how much income your existing pension pot will generate and whether this will provide the lifestyle you want in retirement.
Once we have produced the report, we use it create strategies that could help you achieve the desired standard of living when you finish work. For example, if necessary, we can work out how much more you need to contribute to your pension, or research alternative strategies such as retiring later so that your pension can grow more.
4. Lifestyle change
If you’re considering a career or lifestyle change, reducing the hours you work, or semi-retirement, using cashflow modelling could help us understand the potential effects on your retirement. It provides us with the basic information needed to create an individual report and strategy, which will help ensure your financial security when you finish work.
Knowing this could provide you with the confidence to change your career or improve your lifestyle in the knowledge that it won’t cost you the retirement lifestyle you want.
Get in touch
As a client of Douglas White, if you are approaching retirement, planning your pension, or already a retiree, cashflow modelling will be central to the work we do with you.
If, on the other hand, you have a friend or family member who is unsure about the level of income they’re taking from their pension, and may benefit from cashflow modelling, please pass on our details. We would be delighted to speak to them, and potentially provide them with the confidence they need to fully enjoy their retirement.
Alternatively, if they’re happy to be contacted, we can call them. To contact us, email info@douglaswhiteltd.com or call 0151 345 6828 to find out how we could help.
Please note
This article is for information only. 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. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. 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.
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