Using cashflow modelling to show clients that Covid-19 doesn’t have to delay retirement

, 22 September 2020

Delay retirement

Research has found 1.5 million people plan to delay retirement because of Covid-19. Here’s how cashflow modelling can help show clients an alternative.

The economic consequences of Covid-19 on a national and global level are well-documented. A deep recession, millions of jobs lost, and unprecedented government intervention to prop up both businesses and households.

The pandemic has also affected clients individually. At a basic level, clients may have lost their jobs or spent the last few months on furlough. Income may have reduced thanks to companies deciding not to pay dividends. And volatility in stock markets has led many clients to reassess their plans.

One consequence of the virus has been that significant numbers are considering delaying their retirement. Recent research from Legal & General revealed that 15% of over-50s – as many as 1.5 million workers – plan to delay their retirement by an average of three years due to the impact of the virus. 26% planned to keep working on a full- or part-time basis indefinitely.

L&G Retail Retirement CEO, Chris Knight, says: “The financial impact of the Covid-19 pandemic seems to be particularly pronounced for people aged over 50 who are still in work.

“While some people will choose to work for longer, or indefinitely, the key consideration when it comes to this research is that it seems this decision has been driven by the financial impact of the pandemic, rather than personal choice.”

But do your clients really have to delay their retirement or put their plans on hold?

Here’s how using cashflow modelling can give your clients the confidence to retire – irrespective of the impact of Covid-19.

Giving your clients the confidence to retire

Many clients might have seen headlines about falls in the stock market and immediately assumed that they will have to work longer or postpone their retirement plans. However, the truth can be vastly different. In a previous blog we talk about why demonstrating the impact of (or lack of) market movement on clients’ long term plans should be easy.

Financial planners who use cashflow modelling deliberately build scenarios such as market falls into their assumptions. It’s easy to model the impact of turmoil in the stock market – as we have seen in recent months – when building a financial plan for a client.

Clients who have worked with a planner who uses cashflow modelling are therefore prepared for this situation. Their plan incorporates blips such as market turmoil and it has been constructed in a way that ensures their plans do not have to change in this scenario.

Additionally, using our protection wizard can also help clients. Making sure they have the right life, income, and illness protection in place reduces the financial risk of an unexpected shock, such as an accident or serious illness. It means that if Covid-19 had impacted a client’s family, the right protection would have ensured their plans remained on track. Cashflow modelling is increasingly being used as a tool for planning protection with clients – read why here.

Good long-term financial planning takes periods of volatility into account. A financial plan is constructed assuming that there will be bumps along the way – whether this is a period of unemployment, some unexpected expenditure, or a period like we’ve seen where stock markets are experiencing record rises and falls.

Retirement plans are about a client’s life, not their money

When constructing a financial plan for retirement, it’s important for clients to consider what they plan to do when they retire, not just “can I afford to retire?”

Even though financial planners using cashflow modelling have stress-tested a scenario such as the one we are in, if the pandemic has affected the value of a client’s pension, maybe it’s their plans that need to change and not their retirement date?

A cashflow modelling tool can look at a range of scenarios to help a client understand their options. They may find that they can still finish work as planned, but that they may need to make small cutbacks in their planned expenditure in the short-term while markets recover.

Perhaps having a two-week staycation in 2020 and 2021, rather than a long-haul trip, might enable them to retire now? Cashflow modelling can show clients in black and white what their options are.

Modelling strategies for taking income

Planners can also use cashflow modelling to show clients different strategies to take income – perhaps by considering alternative income sources in the early years of their retirement while markets recover.

This can add significant value. 2019 research by financial analysts Moneyfacts found that clients accessing pension drawdown without advice are three times more likely to run out of money in retirement when compared to clients who had taken financial advice.

Showing clients how a phased retirement can work

The days of finishing work on a Friday and starting your retirement on a Monday are long gone. Clients are increasingly phasing their transition to retirement, by working part-time, taking on a consultancy or freelance role, or even starting their own business.

Cashflow modelling can also help you to show a client the impact of phasing their retirement. Perhaps they only need a small amount of income in the early years to supplement their earned income? Could using their investments rather than their pension in these early years support their estate or tax planning aims?

Again, you can model a range of scenarios to:

  • Help the client understand their phased retirement options
  • Ensure clients draw income in the most tax-efficient way
  • Ensure that estate planning opportunities are maximised
  • Give a client confidence that they have ‘enough’ and that they can live the lifestyle they want in retirement.

To chat with one of us about the benefits of cashflow modelling, email or call 020 3308 9448.

Or why not start your 30 day free trial?

This article was written by Rob Tedder, Client Cashflow Solutions Manager at i4C.