The most common question in financial planning — "do I have enough?" — cannot be answered by looking at a single balance sheet figure. A £2 million portfolio can be entirely adequate for one individual and entirely insufficient for another, depending on their income requirements, their liabilities, when they need the money, and how long they need it to last. Cash flow modelling is the discipline that makes this assessment possible.
What is a cash flow model?
A cash flow model is a computer-generated financial projection that maps all of a client's assets, income sources, expenditure, liabilities, and life events across a timeline running to an assumed life expectancy. It produces an annual (sometimes monthly) picture of net worth through time, showing whether the plan is financially sustainable, when any shortfall might arise, and how sensitive the plan is to changes in key variables.
Rather than producing a single answer, a well-constructed cash flow model produces a range of scenarios — allowing the planner and client to explore the consequences of different decisions and stress-test the plan against adverse events.
Key tools used by UK financial planners
Several software platforms are widely used by UK-based financial planners for cash flow modelling:
Timeline (by Timeline App): a widely used platform in UK financial planning, particularly for drawdown modelling in retirement. Timeline uses historical sequence-of-returns data to generate probability-based projections rather than fixed assumed returns.
Voyant: a comprehensive, adviser-focused platform that models the full financial lifecycle — accumulation, decumulation, estate planning, and trust structures. Strong on multi-scenario analysis and visual presentation.
Prestwood Truth: popular with IFA firms and focused on comprehensive lifetime financial planning, including business owner and succession scenarios.
MoneyGuidePro: more commonly used in the US but growing in international use, particularly for American-connected clients. Integrates with many portfolio platforms.
Bespoke Excel models: for complex structures — family offices, multi-trust estates, international income sources — bespoke spreadsheet models built by specialist financial planners or actuaries may be the most appropriate tool, offering flexibility that off-the-shelf products cannot match.
Key inputs: what goes into a cash flow model?
The quality of a cash flow model is entirely determined by the quality of its inputs. A model built on inaccurate or incomplete data will produce results that are precise but unreliable — a particularly dangerous combination when major decisions depend on the output.
Current asset base: all investable assets should be included — ISAs, pensions (including DB pension values expressed as a capital equivalent), general investment accounts, property equity (net of mortgage), savings, and business interests. The currency and location of each asset matters for international clients.
Income sources: earned income, rental income, pension income (state, occupational, and private), deferred compensation, trust distributions, and any other regular receipts. For DB pensions, the projected income at the expected retirement date should be modelled, including any inflation-linking provisions.
Expenditure assumptions: this is the most difficult input to calibrate and the most consequential. The model should distinguish between essential expenditure (housing costs, food, healthcare, utilities), lifestyle expenditure (travel, leisure, dining), and irregular or one-off expenditure (property purchases, school fees, planned gifts). Inflation assumptions need to be applied — and different categories inflate at different rates.
Inflation assumptions: a single inflation rate is rarely appropriate. The PLSA Retirement Living Standards use separate inflation rates for different expenditure categories. Housing costs, healthcare, school fees, and general consumer goods each have different inflation dynamics.
Investment return assumptions: the expected net return on each asset class, after charges, is a critical — and deeply uncertain — input. Most planners apply a range: a central (expected) return, an upside scenario, and a downside scenario. Return assumptions should be after inflation (i.e., real returns) to avoid double-counting.
Tax projections: income tax, capital gains tax, and inheritance tax should all be incorporated. For internationally mobile clients, this may require assumptions about future tax residency.
Life expectancy: most planners use age 90 as a planning horizon for a 65-year-old; for couples, joint life expectancy (at least one surviving to 95) is often used. Some clients prefer to stress test to 100 or beyond.
Stress testing: the real value of modelling
A cash flow model run at single assumed rates of return and inflation tells you relatively little. The real value comes from stress testing — deliberately applying adverse scenarios to assess the resilience of the plan.
Sequence of returns risk: in drawdown, the order in which returns occur matters enormously. A 20% market fall in the first two years of retirement is far more damaging than the same fall in year fifteen, because early losses are taken from the portfolio before growth can recover them. Some tools (including Timeline) model this explicitly using historical return sequences.
Inflation shock: what happens if inflation runs at 6% rather than 3% for five years? The model should show the impact on real purchasing power and the sustainability of the plan.
Care costs: one of the most significant unplanned expenses in a financial plan. The average cost of residential care in the UK is currently around £45,000–£65,000 per year, depending on location and care needs. Running a scenario with two to three years of care costs towards the end of the planning horizon shows whether the plan is robust.
Death of a spouse: for joint plans, running a survivor scenario (with the associated reduction in income from DB pensions, State Pension, and other joint income sources, and the potential increase in care costs) is essential.
Divorce scenario: for high-net-worth clients, a scenario analysis dividing the portfolio and income base by two provides a sobering view of the financial resilience of the plan.
Limitations: what a cash flow model cannot do
A cash flow model is not a guarantee and cannot predict the future. Its limitations include:
Garbage in, garbage out: if the inputs are wrong — particularly expenditure levels and investment returns — the output is unreliable regardless of the sophistication of the model. Clients who systematically underestimate their lifestyle expenditure will receive misleadingly optimistic projections.
Model assumes rational behaviour: actual investors sell in downturns, change their spending habits, and alter their goals. A model assumes the plan is followed consistently, which is rarely the case.
Cannot capture tax law changes: the model uses current tax rules. Budget changes — to pension taxation, IHT, CGT rates, or allowances — are unforeseeable and may significantly alter outcomes.
Does not replace judgement: a model that shows a plan is "on track" is not a guarantee that everything will be fine. It is a tool for structured thinking, not a certificate.
When should a cash flow model be reviewed?
A cash flow model should be reviewed:
- Annually at the financial planning review, to update inputs and reassess assumptions
- On major life events: retirement, redundancy, divorce, bereavement, inheritance, business sale, relocation
- When legislation changes significantly, particularly in relation to pension and tax rules
- When investment markets have moved substantially — either up or down — from the modelled base
How Global Investments Can Help
Global Investments uses cash flow modelling as a central tool in our financial planning process. We build comprehensive lifetime models for our clients — incorporating investment portfolios, pension structures, property assets, trust income, and international tax considerations — and stress test them rigorously. Our models are reviewed regularly and updated at each client meeting, ensuring that advice is always grounded in an accurate picture of the financial position. To discuss your financial planning, contact our private client team.
This guide is for general information only and does not constitute financial advice or a personal recommendation. The value of investments can fall as well as rise and you may get back less than you invest. Tax rules, pension legislation, and investment regulations change — always verify current rules and seek advice from a qualified independent financial adviser before making any financial decisions.