Do we have enough capital and income to meet our needs and achieve financial independence at the age we would like to do so? Our experience in this area, over many years, has demonstrated that what is usually lacking is not the will to achieve financial independence, but rather the modelling and calculations required to be able to progress with a degree of certainty.

Therefore, we have developed a bespoke cash flow modelling facility to help in this important area. This not only helps determine if the resources are enough to achieve financial independence but also ‘stress tests’ the assumptions to ensure the planning is robust.

For example, Mr and Mrs Jones are aged 50 and own 100% of their business, Alpha Engineers Limited. Their objectives are to:

• achieve financial autonomy from age 60
• support expenditure from age 60 of £50,000 per annum net, in today’s terms, through to age 90
• release capital at age 60 of £200,000 to buy a holiday home
• support the family’s university costs, estimated at £30,000

We completed financial modelling to determine whether their objectives could be met, along with some sensitivity analysis to consider ‘what if’ scenarios, such as:

• What if growth rates/inflation are higher or lower than expected in the future?
• What if certain ‘events’ they have not considered occur? Can their planning accommodate these?
• What happens if they suffer an illness, injury or death? Can their objectives still be met?

Assumptions used:

• growth of 4% per annum net, inflation 2% per annum, cut-off age 90
• normal income from business covers their expenditure from now to age 60
• Their main residence value is not included in the calculation for their expenditure needs

Planning conclusions

Based on them being able to sell the business for £1,200,000, along with their existing resources, the conclusion was that all of their objectives to age 90 could be met.

Indeed, analysis concluded a higher expenditure of £63,000 per annum net could be achieved from age 60 and not run out, based on the assumed growth rate and inflation. Alternatively, they could afford to make a gift at age 60 of circa £380,000 and still achieve all other objectives.

If the business sale were to only generate £1,000,000, they could still achieve all their objectives. They could also consider whether to take less risk with monies, if that were preferred.

The exercise provided peace of mind for all around whether their objectives could be met.

This type of planning can be completed in isolation but is usually part of a wider financial planning exercise, which could also add value to the work being completed by accountants and solicitors around business and estate planning, helping to quantify the client’s objectives.

Hindsight will only tell us whether enough was enough, so all we can do is try to provide the tools and planning to seek to achieve it!

Feel free to contact your consultant at Mattioli Woods to help build a retirement strategy for you or your clients.

• This article has been produced for information purposes only. It is not intended to be an invitation to buy or act upon the comments made. All investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances and one must satisfy certain investor criteria before being considered eligible to invest. Any forward-looking statements and forecasted returns represent the current views of Mattioli Woods plc and may be subject to change. Your capital may be at risk and past performance is not a guide to future returns. Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.

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