Lifetime cashflow forecasting is a core part of financial planning that could help you understand how your future may look. It could provide essential information that means you’re able to feel confident about what’s to come and the decisions you make. Read on to find out how it works and why it might be valuable for you.

Lifetime cashflow forecasting uses your financial information and plans to make an informed guess about how your wealth will change over time. It can then use this information to create graphs and more so you’re able to visualise how the value of your estate and individual assets might change based on the decisions you make.

To start, you’ll need to input details about your financial circumstances, like how much you have in a savings account or the value of your pension. You can then add how the actions you take now will affect your wealth. For example, you might include adding £300 to your investments each month or contributing 8% of your income to your pension.

As other factors outside of your control will also affect your wealth during your lifetime, cashflow forecasting will make certain assumptions, such as:

• The rate of inflation
• Growth of your investments
• Assets rising in value, like your property.

It’s important to ensure accurate information when using cashflow forecasting, and it’s often wise to err on the side of caution and be realistic when making assumptions – you might want to achieve annual investment returns of 8%, but is that likely when you consider your risk profile?

So, while the results of cashflow forecasting cannot be guaranteed, it could provide you with a valuable snapshot of how your wealth might change during your lifetime. But how does that help boost your confidence?

1. It could help you understand when you’ll be financially independent

One of the challenges of managing your finances is that you often need to consider your lifestyle and needs for decades in the future, particularly when you’re thinking about retirement.

It can be difficult to know when you have “enough” saved in your pension to be financially independent. Lifetime cashflow forecasting could show you when you may be able to retire and take a sustainable income that suits your needs. As well as your pension it could incorporate other assets that might fund retirement too, such as savings or property.

If you find the date is further away than you’d like, cashflow forecasting could help you visualise how changing your finances now may allow you to retire sooner. For example, boosting pension contributions by 2% could bridge the gap so you’ll be financially independent earlier.

2. It may give you the confidence to spend more

When you ask people about their long-term financial concerns, one of the biggest is that they’ll run out of money in retirement. Indeed, a survey published in IFA Magazine found that almost half of people are concerned about this.

Yet, the opposite can also happen – you have built up enough wealth to enjoy your later years, but due to worries about running out, you’re more frugal than you have to be. It could mean that you miss out on amazing experiences you’ve been looking forward to even though you have the means to pay for them.

So, while it might seem illogical at first, cashflow forecasting could encourage you to spend more. Remember, financial planning isn’t about maximising your wealth, it’s about understanding how to use your assets to create the life you want, including spending more if you’re in a position to do so.

3. It might ease worries you have about unexpected events

Even the best-laid plans may be derailed by unexpected events that are outside of your control. Cashflow forecasting could let you model the shocks you’re worried about so you understand the effect they could have and what steps you might take to ensure your long-term security.

For instance, you may know you can afford to comfortably retire when you turn 65. But what if ill health means you need to retire five years earlier than expected? Cashflow forecasting could demonstrate how you might maintain your financial security by adjusting your income needs, adding more to your pension now, or using other assets.

If you have “what if?” questions that are preventing you from feeling confident about the future, cashflow forecasting could be a valuable tool that helps to put your mind at ease.

4. It could help you understand how you could support the next generation

For many people, providing support to loved ones and leaving a lasting legacy is important.

Lifetime cashflow forecasting could be useful if you want to pass on assets during your lifetime – it could help you understand the long-term implications and whether it might affect your financial security in the future.

You might also use it to calculate the expected value of your estate when you pass away, which could inform your decisions about how you’d like assets to be distributed or whether you need to consider Inheritance Tax.

Understanding what the value of your estate could be when you pass away might also help your beneficiaries plan more effectively. In some cases, you may want to involve your loved ones in your financial plan to discover how you may lend support.

Get in touch to talk about your goals and financial future

If you have questions about your financial future or would like to update your financial plan, please get in touch to arrange a meeting with our team.

Please note:

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

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

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.