Thinking of using the new pension freedoms? Think cash flow planning first.

As financial advisers, one of the most important exercises we will carry out with clients is cash flow planning.

For those of you who have been through this process already, you’ll know that it provides a wonderfully clear look forward into the future at your financial situation at any given point.

Taking account of all of your income and expenditure, your savings and your lifestyle, cash flow planning can model different scenarios and provide vital data for financial planning.

Do you know that you are planning on a large house purchase in a few years? We can show you how that will affect your day-to-day living costs and disposable income. Want to retire and travel the world? We can model what income you will require to do that and therefore work out how much you need to save. Does that amount match what you hoped you would be putting away out of your regular salary?

Cash flow planning then is a very important tool, one of many, to help us to carry out proper lifestyle financial planning with you.

It’s arguably even more important with the advent of the new pension freedoms.

The new freedoms, if you are not already aware, allow more people to access more flexible pension arrangements. This could mean that, in theory, you could withdraw all of your pension pot, in cash, at the point you initially access it.

The more likely scenario is actually that people use the freedoms to ‘dip’ into their pension whenever something big occurs. Fancy a holiday? Your pension savings will be available. Relative in need? Just take a little more out of the savings.

With this unplanned approach though, how will you be certain that your pension will last for the rest of your life, and how will these unplanned withdrawals impact your plans?

Working with a financial planner, using methods like cash flow planning, we can make sure that we factor in to your planning these ‘small extras’, working with you to make sure the pension freedoms are used in the right way, rather than to the detriment of your retirement.

The freedoms are extremely exciting and provide much more flexibility to pensions, but making sure you achieve your goals means working to a plan, something we can help you to achieve and more besides.