How cash flow modelling could help to manage your inherited wealth

Knowing what to do with inherited wealth can present a difficult and emotional challenge. And weighing up how best to put it to work to meet your short- and long-term goals isn’t always straightforward. Cash flow modelling can be a vital tool in helping you decide what to do. 

Building your individual cash flow planner involves assessing your current and forecasted wealth, along with your income and expenditure, using assumed rates of investment growth, inflation and interest rates to build a picture of your finances now and in the future.

If you have accumulated and/or inherited wealth, cash flow modelling can help you manage your position and make sensible decisions over the years. However, cash flow planning is arguably even more beneficial if you have longer-term personal or business objectives, as you can see how much you need to save and the returns you need to meet those defined objectives.

What could cash flow modelling do for me?

To create your individual cash flow planner, we start by asking you about your current financial situation, including outgoings and income, and establish an overview of your assets, including your property. Once we have a clear picture of your existing and future financial commitments and your goals, we can create your lifetime cash flow modelling plan to help you achieve them.

Contact us to talk to one of our independent Financial Planners for a free cash flow planning consultation. Working with our independent Financial Planners, the process will:

• Give you a true picture of where your finances are right now
• Bring your future to life by illustrating how your situation and needs might change
• Deliver an analysis of your personal income and expenditure
• Estimate your future cash flow
• Work towards achieving and maintaining financial independence
• Ensure you’ve made adequate provision for the financial consequences of death or disablement
• Plan to minimise your tax liabilities
• Develop an investment strategy for your inherited wealth, capital and surplus income
• Become aware of inheritance tax issues that could affect your beneficiaries
• Answer questions like: will my assets and savings be enough to support my aspirations? Am I taking too much investment risk with my pension or portfolio? Or will I run out of money?

How does cash flow modelling work: a typical case study

The following example shows how we have used cash flow modelling to help clients effectively plan their finances - and hopefully not run out of money.

Cathy and Chris are both in their 50s, with reasonable savings and two children who remain financially dependent. They’ve reached a point where they wish to take stock of their finances and think about the future. Their goal is to retire in their early sixties and sail around the world.

To help them achieve this, we created a cash flow plan to assess whether their current savings would be enough to provide the £3,000 per month they want to live on in retirement. We also took account of their commitments: they need to repay their mortgage, cover their children’s university fees and they want to help them onto the property ladder.

The cash flow plan breaks down Chris and Cathy’s finances year-by-year over their estimated lifetimes. It takes account of all their savings and investments, any inherited wealth, pensions, spending and the financial support they’d like to offer their children.

The cash flow model shows the value of their savings when Chris reaches 60, when they will have accumulated nearly £1.4m in savings to help them realise their dream of sailing around the world. However, from this they need to repay the mortgage and start drawing their target income.

At the end of 2029, allowing for 2.5% growth per annum, they will have around £1.4m available to meet their ongoing commitments.

The cash flow plan continues to detail each year’s projected financial situation, including:

• When Chris is aged 65 and they withdraw funds from his pension to help their children buy their first home
• When he’s 85, they downsize to a bungalow, releasing £750,000 to help rebuild their asset base for later life needs
• It also details any inheritance tax liability in each year.

Ultimately, the cash flow plan showed that if Chris and Cathy live to 95 and 93 respectively and need care in later years, their children will still inherit around £1m, which should be free from inheritance tax. Addressing their worries about the future gave them peace of mind and the confidence that their financial plans were on track.

If you want to read more about our lifetime cash flow planning service and see another example of what a cash flow plan looks like, download our short guide.

Speak to a financial planning expert today

To find out how your inherited wealth could affect your future finances, book a free consultation with a Canaccord Genuity Wealth Management specialist. If it turns out your cash flow plan means you might not be on track to meet your goals, we can help with different financial planning strategies to get you back on track.

Did you find this interesting? Further reading:

• The ideal time to review your financial planning arrangements
• Succession: Your guide to managing inherited wealth
• Financial planning for retirement

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

The tax treatment of all investments depends upon individual circumstances and the levels and basis of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.