Happy Fall!

As we enter the last quarter of 2022, continued market volatility reminds us of how important it is to adhere to a disciplined investment strategy.  Investment planning represents a key pillar within our Dynamic Wealth Design.  Part of this planning involves creating investment goals in relation to a stated risk tolerance and time horizon.  Planning for and through retirement is a common time horizon in which we assist our clients.  To be able to invest money for and through retirement, there are other factors that must be identified.  Quantifying income/expense needs marks an essential first step in this process.  Once a burn rate is established, we can project it into the future alongside available assets, such as pensions, savings, brokerage, and retirement accounts.   This technique can be described as a cash-flow analysis.  A cash-flow analysis is a core component within our Dynamic Wealth Design and provides the framework for a strategic investment plan.

Our founder, David C. Partheymuller, CFP®, CEP®, has contributed to several wealth management books and publications over the years.  “Ways & Means,” is one of them where Dave outlines specific issues that address retirement planning needs.  The book is written in an easy-to-understand question and answer format to assist people in identifying and understanding certain topics that may be relative to their financial situation.  In Chapter 1:  Retirement Planning Goals, the importance of a cash-flow analysis is explained:

• “As my financial planners, how would you help me determine how much money I’m going to need for retirement?

We would start by completing a thorough cash-flow analysis for your current situation.  Then we would do a projected cash-flow analysis for your retirement years based on such factors as age of retirement, taxes, inflation, debts, your family situation, and all sources of income during retirement.  While it is difficult to anticipate exactly how much you will need, this is where we would start.

• What is a cash-flow analysis?

Basically, a cash-flow analysis, is simply a look at your monthly income from all sources, less monthly expenses and taxes, extended beyond your normal life expectancy.  All monthly surpluses or shortages are either added to or subtracted from investment and savings reserves.

Over time, adjustments are made for all your goals, aspirations, and objectives that can be quantified.  These might include college education for the children or grandchildren, care for an elderly parent, that super vacation you have always wanted to take, a mobile home to travels the country, or a new roof for your house.

• Why is doing this analysis so important?

There are many reasons why the cash-flow analysis is important:  The process helps you confirm your retirement goals for yourself and enables your advisors to determine your financial needs.

The analysis provides a financial model that is really the beginning of your retirement planning process.  The model includes annual milestones to track and compare your progress.  It also lets you see which variables are important and how changes and variations my affect the results”.

The cash-flow analysis can be a powerful tool.  We will stress test these analyses to discover a variety of potential outcomes.  Typically, we underestimate potential rates of return on investments and overestimate inflation on expenses.  During times of prolonged market downturns, we can look to the cash-flow analysis to see how it is affected.  Often, the potential for peace of mind is presented, as in volatile times, when one can see that long term financial goals are little impacted.  Still, the analysis is only as accurate as the information and assumptions being used.  Therefore, it is important to update these analyses in a timely manner for accuracy.  We encourage our clients to review their cash-flow analysis at least annually.  We are always available to update them more frequently, especially when a major life event emerges or is on the horizon.

Furthermore, “Ways & Means” offers a myriad of FAQs and answers for anyone who is looking to “maximize the value of your retirement savings”.  Please reach out to the office if you would like a complimentary copy, or pick one up the next time we meet.  We’re happy to send one your way.  You may also visit our bookstore at normandygroup.com/books-and-ebooks/ and order it online.

As always, thank you for your continued confidence and trust.  We are here to be of service.

Best regards,

Charley Partheymuller, CFP®

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