Managing Cashflow in Retirement

By Graham Prest, Chief Executive, 25 April 2018

The financial services sector has an obsession with investment performance tables, charges, fees and regulatory compliance. Amid this noise it can be easy for us to forget what clients of good financial planning firms really value: in my experience it is none of the above!

At Prest our clients tell us that the things they value most from us are service, trust, integrity, family culture and so on. Lifetime financial planning, which enables people to enjoy fulfilled, financially secure lives, is the ultimate expression of these values.

Many of our clients are either partly or fully retired. Today’s pensioners have more wealth than ever before but often come to us with no clear lifetime financial plan, and the anxiety that results from uncertainty about their long-term security.

Income and wealth

The majority of an employed person’s financial resources usually come from income, with wealth (capital) making up a relatively small proportion of the mix. In retirement, particularly in the light of the pension freedoms that came into force in 2015, this can often turn on its head.

Earlier retirees, who have yet to reach state pension age, can frequently be highly active while still getting used to a fall in income. We find that they really benefit from us graphically setting out the bigger picture for them in the form of a cashflow model.

Spending patterns

When clients start to receive their state pension in addition to their private provision, their incomes will often be higher than in early retirement. As they get older they will also tend to become less active and their spending will usually start to diminish.

This may reduce any concerns they have about running out of money but could replace them with other worries about care fees and Inheritance Tax. A comprehensive financial plan backed up by a lifelong cash flow model helps address these worries and ensures that any decisions are made on an informed basis.

From around the age of 75 normal spending can often be 35 per cent lower than it had been a decade earlier, with clients having perhaps downsized their homes, and their lifestyles having become more sedate. Ironically these lifestyle changes often come at a point when their income and/or wealth has reached its highest-ever point.

Planning a legacy

If they have not managed to do so before this, many clients are then forced into making key decisions about their wealth. These decisions include the structure of wills, making gifts and using trusts, while balancing  concerns about care costs and savings exhaustion – fears that can be allayed by a robust cashflow forecast.

While it is never too late to plan ahead, the earlier these decisions are made, the more effective they are likely to be. Retirees today have more resources than any previous generation but they also have far more complex decisions to make and, in many cases, are now responsible for making their own wealth last a lifetime and beyond.

Financial planning can make a crucial difference. Not only does it help ensure that clients achieve their goals, it also provides them with the peace of mind that comes from knowing they are on course to do so.

You can find out more about lifelong cashflow forecasting by following this link to view a short video.

For more financial planning tips, opinions and insights, and news from Prest, click here to receive our email newsletter.

Share this article: