Cash Flow Modelling For Retirement

Cash Flow Modelling Assumptions For Retirement

Assumptions you may wish to use:

• Inflation 2.5%pa – this is the UK average since 1988.
• Growth 5%pa - this is the FCA mid-growth rate.
• Fund Management Charges 1%pa - this is again an industry standard and tends to be a maximum charge set by Government on many pensions e.g.  Stakeholder and some ISAs.
• This means a net growth rate of 4% pa.
• OR you can make investment assumptions with inflation taken out by assuming investment growth at just 1.5% (4% net growth less inflation at 2.5%pa) and no increases to expenses or pensions in payment (as it will keep your projections at today’s prices).

What you should do now:

• Work out expenses and inflation link them do each comimg year.
• Guaranteed pensions, annuities, state pensions etc – table them up and increase them each year (when they start) with inflation (if applicable).
• Each year, deduct the applicable index expenses for that year to show spending defecit or shortfall.
• Money Purchase Pensions (if drawdown) and investments – increase each year with net 4% growth.
• One off expenses – insert for selected years any anticipated capital expenses house repairs, replacement car, white goods/brown goods etc.
• Deduct one off expenses and any spending deficit in yearly expenses (3 above) from Investment Linked Pensions and Savings Value.
• Map this out all through the coming years
• If your capital does not run out, then you should be fine on your planned spending in retirement, there may even be room to drawdown more.
• If your capital runs out, you are drawing too much or will need to

1. Reduce your expenses/cut back on leisure
2. Increase funding in your pensions and savings funds ahead of retiring

Take a look at our Pre Retirement Review Service:  Retiring Review

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