Contents Introduction... 2

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1 Last updated: November 9, 2012 Cash Flow Planner User Guide Contents Introduction... 2 Using the Cash Flow Planner... 4 Understanding How the Cash Flow Planner Uses Plan Information Generating the New How Do I Pay for My Retirement Report Section FAQs How does the Cash Flow Planner differ from the Household Balance Sheet? Why do the Household Balance Sheet and the Cash Flow Planner sometime give conflicting results about my clients ability to fund their goals? In what order does the Cash Flow Planner use a household s funding sources to pay for the household s goals? How are rates of return calculated and applied in the Cash Flow Planner? What does the Cash Flow Planner do with future savings and future benefits? Why does the Cash Flows screen include projections for all future years while the How Do I Pay for My Retirement? section of the Goal Achievement Report cover only a household s retirement years? How does the Cash Flow Planner take taxes into account? How are deficits calculated? What should I do if my client has a deficit? How can the Cash Flow Planner help me? Why is the Cash Flow Planner labeled as a Beta? What should I do if I have questions about the Cash Flow Planner or find an issue? Advisor Software, Inc All Rights Reserved Page 1 of 21

2 Introduction Money in, money out. Cash flow is that simple. Except when helping your clients realize their financial goals. Then, a shortage of cash can derail even the best-laid plans. goalgamipro Can Help Will your clients have the money they need to: Enjoy a second honeymoon the same year they celebrate their 25 th wedding anniversary? Pay for their child s college education and still retire at age 65? Remodel their home? Buy the sports car they ve dreaming of? Purchase long-term care insurance? Whether big or small, long-term or short, your clients can only realize their goals if they have the money to pay for them. That s where goalgamipro comes in. An easy-to-use, straightforward assessment tool, goalgamipro helps you help your clients: Identify their goals and set timelines for achieving them Establish how much their goals will cost Assess their ability to pay for the goals Develop a financial plan to get them from where they are today to where they want to be goalgamipro offers timely, actionable analysis and insights so that you and your clients can make informed choices and engage in meaningful discussions. Introducing the Cash Flow Planner goalgamipro already offers a very powerful tool for helping assess whether clients can achieve their goals. It s called the Household Balance Sheet, and it s effective at answering a simple, but important client question: Can I afford my goals? Now goalgamipro introduces the Cash Flow Planner. Another powerful diagnostic that complements Household Balance Sheet, Cash Flow Planner answers the next logical question clients ask: Can I pay for my goals when the time comes? Like the Household Balance Sheet, the Cash Flow Planner uses a client s plan information, including expected income, expenses, goals, and economic assumptions. Whereas the Household Balance Sheet Advisor Software, Inc All Rights Reserved Page 2 of 21

3 uses this information to compare the value of a household s financial resources to the cost of its goals in present value terms to determine if the household can afford its goals at a point in time, the Cash Flow Planner uses the information to model and compare needed annual year-by-year future cash flows from all household funding sources to determine if the household will have enough money to pay for its goals when they come due. Like all features of goalgamipro, the Cash Flow Planner helps you and your clients understand what actions to take today to enable clients to enjoy their goals, including retirement, in the future. Key Features/Components The Cash Flow Planner includes: Cash flow modeling engine that determines the optimal account drawdown strategy for funding goals Detailed annual cash flows that show: o Funding sources for a client s goals o The cost (including taxes and fees) of a client s goals o Remaining account balances after funding a client s goals A How Do I Pay for My Retirement? section you can add to each Goal Achievement Report so that you can quickly and effectively show your clients how prepared they are for retirement Benefits of the Cash Flow Planner The Cash Flow Planner helps you: Spot funding deficits easily See which income sources and accounts are used each year to fund goals See which funding sources are utilized to pay for the cost of goals and how long assets will last Visualize what future cash flows will look like Model cash flows by goal level Quickly revise plan information and economic assumptions so you can see how cash flows change See how taxes and other costs affect cash flows Advisor Software, Inc All Rights Reserved Page 3 of 21

4 Using the Cash Flow Planner Your clients have goals. But can they pay for their goals when the time comes? This is the question the Cash Flow Planner helps you and your clients answer. With confidence. Like the Household Balance Sheet, the Cash Flow Planner is easy to use. And because it relies on plan information you ve already entered including expected income, expenses, goals, and economic assumptions no additional set up is required. 1. Getting Started Click on the Cash Flows tab to access the Cash Flows screen. The first time you click on this tab for a household, this is the screen you will see. Simply click on the Generate Cash Flows button to generate cash flow results. If you have already generated cash flows for a household, you will see the household s most recent cash flow results, including the date and time it was created. Advisor Software, Inc All Rights Reserved Page 4 of 21

5 2. Understanding the Cash Flows screen The Cash Flows screen is broken into three main sections, each of which includes projected year-byyear cash flows. The three sections are: Funding Sources to Fund Goals Cost of Goals Household Account Balances Each section features year-by-year projections in the main body of the table; to view, use the scrollbar at the bottom. Here s a closer look at each of the three main sections: Advisor Software, Inc All Rights Reserved Page 5 of 21

6 Funding Sources to Fund Goals A list of the household s existing and future funding sources: o Brokerage/Bank Accounts o Retirement Accounts o Future Savings o Future Benefits (Annuities, Pensions, Social Security) Year-by-year projections of funds withdrawn to pay for the cost of goals; to minimize taxes and fees, money is withdrawn in this order: 1. Income from Social Security, pensions and annuities 2. After-Tax Savings/Income 3. Brokerage/Bank Accounts 4. Retirement Accounts Cost of Goals A list of the household s goals How much the household is projected to spend each year on each goal adjusted annually if COLA was selected or an Additional Annual Adjustment was entered for the specific goal Projected taxes on money withdrawn from Retirement Accounts to pay for goals Projected fees for transaction costs on money withdrawn from Brokerage Accounts to pay for goals or early withdrawal penalties on money withdrawn from Retirement Accounts where the account owner is less than 59 ½ years old Projected funding deficits and the year or years in which they are expected to occur Household Account Balances A list of the household s accounts by type (i.e., Brokerage/Bank Accounts, Retirement Accounts) The projected year-by-year balance in each account after the household has paid for its goals Retirement Year Under Household Account Balance, you will find a footnote that indicates the household s retirement year the year in which all of the household s principals will be retired. The household s retirement year is also highlighted in the cash flows table. Advisor Software, Inc All Rights Reserved Page 6 of 21

7 Rates of Return At the bottom of the Cash Flows Screen, you will see rates of return by account type. Keep in mind that the economic assumptions you selected when establishing the household s plan play an important role in determining these rates. For more information about how rates of return are determined, see the FAQs below. 3. Analyzing the Cash Flows table Now that you have a basic understanding of the Cash Flows Screen, take a few minutes to analyze the household s projected cash flows so that you have a better sense of whether the household will have sufficient cash flows to pay for its goals when the time comes. Pay particular attention to: Advisor Software, Inc All Rights Reserved Page 7 of 21

8 1. Funding sources by year. Look at each individual funding source by year, as well as the total for all funding sources. How much money is being drawn each year from each account type? Which funding sources get used? Which funding sources run out first? Which extend into the future longest? At what point, does the household run out of money? 2. Cost of goals by year. Look at the cost of each goal by year, as well as the total cost of all the household s goals. In which year(s) are goals expected to be realized? In which years is there enough money to pay for these goals? In which years do deficits occur? 3. Household account balances by year. Look at each account balance by year, as well as the total account balance. Do the accounts run out of money? If so, when? 4. Review cash flows by goal priority level When analyzing a household s cash flows, it s important to look at cash flows by goal priority level because as the cost of goals increases, so does the possibility of deficits. And the greater amount of these deficits, the sooner they occur. To choose which goal level you want to generate a cash flows table for Necessary, Target or Aspirational use the dropdown menu in the top right of the Cash Flows Screen. Advisor Software, Inc All Rights Reserved Page 8 of 21

9 5. Revisit Plan Information If you like what you see when you review a household s cash flows, great. You and your clients can both rest easier. If not, you may want to revisit the plan and make adjustments, such as increasing the household s retirement age or increasing savings to improve the household s cash flows and thus increase the likelihood that your clients will realize their goals. Advisor Software, Inc All Rights Reserved Page 9 of 21

10 Understanding How the Cash Flow Planner Uses Plan Information As you d expect, the plan information, including plan details and economic assumptions that you entered when establishing a household s plan have a direct bearing on the household s cash flows. Here is an overview of that information and how the Cash Flow Planner uses it. What It Is Expected Retirement Age Life Expectancy How the Cash Flow Planner Uses the Information The expected retirement age entered for each principal determines the timing of all retirement-related funding sources and goals. A household is considered retired when all principals have reached retirement age. Life expectancy determines the end date for certain funding sources and goals. The Cash Flow Planner supports two different methods of determining life expectancy: Actuarial. Based on standard actuarial tables, this method uses the median life expectancy of each principal as their death age. Advisor Software, Inc All Rights Reserved Page 10 of 21

11 Age of death. This method uses the specific life expectancy age you entered in Plan Detail when setting up the household s plan. The Cash Flow Planner returns cash flow results out to the median life expectancy of the principal who dies last. Average Tax Rate for Household Taxes are applied when taxable funding sources are used to pay for the cost of goals. A household s average tax rate is the combined federal, state, and local effective income tax rate you entered when setting up the household s plan. NOTE: If you do not enter a tax rate, the Cash Flow Planner uses a default combined tax rate of 33.6%. Advisor Software, Inc All Rights Reserved Page 11 of 21

12 What It Is Cost of Living Adjustments (COLA)/Additional Annual Adjustments Transaction Costs How the Cash Flow Planner Uses the Information For COLA-enabled funding sources and goals, as well as those funding sources and goals for which you have selected an additional annual adjustment, the Cash Flow Planner automatically makes those adjustments from the current date until the funding source comes to an end or the goal is realized. Transactions costs are applied only to brokerage accounts and only on the amount withdrawn to fund goals. When applying transaction costs, the Cash Flow Planner uses the transaction cost percentage you selected in Economic Assumptions when setting up the plan. NOTE: Transaction costs are not applied to retirement accounts. Early Withdrawal Penalty for Retirement Accounts If paying for goals requires withdrawing money from a household s retirement accounts before the principal associated with the account reaches age 59½, the Cash Flow Planner automatically assesses an early withdrawal penalty of 10% on all withdrawals. Advisor Software, Inc All Rights Reserved Page 12 of 21

13 Generating the New How Do I Pay for My Retirement Report Section Utilizing the results from the Cash Flow Planner, we have added a new section to the Goal Achievement Report, titled How Do I Pay for My Retirement?. This section helps answer one of life s most important questions: Will I have enough money when I need it during retirement? To generate the How Do I Pay for My Retirement? section of the Goal Achievement Report: 1. Click on the Report tab. 2. Select which sections you want to include in the Goal Achievement Report. Check Include All Sections to create a report that includes all four sections, or you can select individual sections. Advisor Software, Inc All Rights Reserved Page 13 of 21

14 For the How Do I Pay for My Retirement? section of the report, you can choose which goal priority levels to include. 3. Scroll down and choose the How Do I Pay for Retirement? narrative text you want to include in the Goal Achievement Report. You must choose a narrative for each goal priority level. Or you may click on Edit Narrative Text to write your own narrative. NOTE: This narrative text will appear below the title on the How Do I Pay for My Retirement section of the report. Advisor Software, Inc All Rights Reserved Page 14 of 21

15 4. Generate the Goal Achievement Report and review the How Do I Pay for My Retirement section of the report. Advisor Software, Inc All Rights Reserved Page 15 of 21

16 The title of this section of the report. 2. The name of the household for whom this section of the report was prepared. 3. The date this section of the report was generated. 4. The narrative text you selected to accompany the charts 5. The retirement period text. This automatically generated text explains the time period covered by the charts, which begins with either the year the household is expected to retire or the current year if the household is already retired and ends when the household is expected to die or in 33 years, whichever occurs first. 6. Chart 1: Sources of Funding by Year for your Goal Level This chart shows the total amount the household needs to fund its goals and where that money is coming from: Future Benefits (e.g., Social Security, Pensions, Annuities) After-Tax Savings (e.g., income such as a part-time job) Advisor Software, Inc All Rights Reserved Page 16 of 21

17 Brokerage/Bank Accounts Retirement Accounts It also shows when deficits occur. Use this chart to identify any years in which your clients won t have sufficient funds available to meet their goals. 7. Chart 2: Account Balances by Year. This chart shows the total balance of all household s accounts over the household s retirement years, broken out by account type: Brokerage/Bank Accounts Retirement Accounts Use this chart to determine how long your clients assets will last during retirement. Advisor Software, Inc All Rights Reserved Page 17 of 21

18 FAQs 1. How does the Cash Flow Planner differ from the Household Balance Sheet? Here s a high-level overview of the similarities and differences: Function The Cash Flow Planner The Household Balance Sheet Goal Priority Both the Cash Flow Planner and the Household Balance Sheet analyze and produce Levels results by goal priority level: Necessary Target Aspirational Life Expectancy Required Minimum Distributions (RMDs) Taxes and Fees The Cash Flow Planner supports two methods for determining life expectancy: actuarial and age of death. If you choose the actuarial method, the Cash Flow Planner uses the median life expectancy of each principal as their age of death. The Cash Flow Planner determines a household s cash flows out to the age of the death of the principal who dies last. If the principal associated with a retirement account is age 70½ or older, the Cash Flow Planner will automatically take RMDs from that account and either route the money to a taxable account or use it pay for the cost of the household s goals. The Cash Flow Planner does not take estimated capital gains tax into account for brokerage accounts. The Cash Flow Planner only takes transaction costs into account on brokerage accounts; transaction costs are not taken into account on retirement accounts. Like the Cash Flow Planner, the Household Balance Sheet also supports the actuarial and age of death methods for determining life expectancy. However, if you choose the actuarial method, the Household Balance Sheet applies a person s survivor probability. The Household Balance Sheet only takes RMDs into account if they affect the liquidation of the accounts today. The Household Balance Sheet calculates capital gains tax on brokerage accounts based on each holding s tax basis. Value The Cash Flow Planner uses future value. The Household Balance Sheet uses present value. Advisor Software, Inc All Rights Reserved Page 18 of 21

19 2. Why do the Household Balance Sheet and the Cash Flow Planner sometime give conflicting results about my clients ability to fund their goals? The Household Balance Sheet and Cash Flow Planner are fundamentally two different financial models. The Household Balance Sheet is a snapshot of the household s overall financial situation at a particular moment in time. Future goals are represented in present value terms so that they can be compared to the current value of a household s financial resources to see if the household has sufficient resources in today s dollars to cover the cost of its goals. Conversely, the Cash Flow Planner projects future annual cash flows needed to fund a household s goals, taking into consideration annual income and investment returns on account balances, as well as taxes and fees on account withdrawals. Both the Household Balance Sheet and the Cash Flow Planner are designed to provide separate and unique insights into whether a household can afford its goals, and how the household might pay for its goals over time. As a result, sometimes you may see conflicting results. For example, the Household Balance Sheet may indicate that a household can afford its goals over its lifetime. However, due to a large near-term expenditure, the household may not accumulate the necessary funds in time to pay for its goals. In this instance, the Cash Flow Planner will indicate that the household will have a deficit in that year. 3. In what order does the Cash Flow Planner use a household s funding sources to pay for the household s goals? The Cash Flow Planner determines balance and fund availability and withdraws funds in order to minimize tax consequences. Funds are withdrawn in this order: 1. Income from Social Security, Annuities and Pensions 2. After-tax Savings/Income 3. Brokerage/Bank accounts 4. Retirement Accounts 4. How are rates of return calculated and applied in the Cash Flow Planner? The first component of the calculation is the discount rate for each goal priority level, which you entered in Economic Assumptions when setting up the household s account; in the Cash Flow Planner it is used for to calculate rate of return. The second component is the weight of the goal level to the total goals (i.e., Necessary goals are x% of total goals.). Third, we look at the percentage of each goal level that can be funded by the household; this is called the Funding Ratio. For each priority goal level, we multiply these values the discount rate, the weight of the goals, and the Funding Ratio. Finally, we total the rates for each goal level to determine the final rate of return. For brokerage accounts, the Cash Flow Planner uses the rate of return for retirement accounts and factors in taxes. For bank accounts, the Cash Flow Planner uses a fixed rate of return that is reviewed and, if necessary, revised periodically. Advisor Software, Inc All Rights Reserved Page 19 of 21

20 5. What does the Cash Flow Planner do with future savings and future benefits? Future savings and future benefits are entered to the appropriate funding source in the year they are received. For example, Social Security income is deposited into Future Benefits: Social Security. If the contribution is not used in the year it was deposited, it is moved into a brokerage, bank or retirement account. For example, if a client sells his house and deposits $250,000 into future savings but doesn t need that money in the first year, the money will be moved into a bank account the following year. If there is no bank account, the money will be moved to a brokerage account. 6. Why does the Cash Flows screen include projections for all future years while the How Do I Pay for My Retirement? section of the Goal Achievement Report cover only a household s retirement years? Analysis of client s cash flows is most important for retirement. To produce a concise, client-friendly report, goalgamipro offers a chart that focuses solely on the client s retirement years. The Cash Flow Planner Cash Flows screen helps you to answer client questions about events that occur before retirement. 7. How does the Cash Flow Planner take taxes into account? Taxes are incorporated for Traditional 401(k) and IRA accounts by applying the tax rate entered in the tool to all disbursements. For withdrawals made prior to age 59½, penalties are applied if you have selected to have penalties assessed. Roth accounts are not taxed, although penalties are applied to withdrawals made prior to age 59½, if you have selected to have penalties assessed. Taxes are not applied to brokerage accounts. 8. How are deficits calculated? If a client s Cost of Goals exceeds the total of the client s Funding Sources, a deficit occurs. The value of the deficit is calculated by subtracting the sum of all Funding Sources for a given year from the total of all Cost of Goals. 9. What should I do if my client has a deficit? Discuss the reasons for the deficit with your client. Have you incorporated all the client s accounts? Did the deficit occur because the cost of goals is too high? Can the client save more? There are several different directions the conversation can go when both you and the client fully understand the Cash Flows analysis. 10. How can the Cash Flow Planner help me? The Cash Flow Planner is designed to help you: Optimize the way in which your clients pay for their goals. With a pre-defined spending order that takes into account taxes and fees, the Cash Flow Planner helps you help your clients make the most their money (what they ve already saved, as well as what they expect to receive in the future). Advisor Software, Inc All Rights Reserved Page 20 of 21

21 Assess whether your clients are on track to realize their goals. The Cash Flow Planner provides an at-a-glance, optimal view of how a client s goals can be paid for and makes it easy to assess client cash flows by goal priority level. Show your clients how they can pay for retirement. The new How Do I Pay for My Retirement? section of the Goal Achievement Report is an ideal way to show clients whether they are going are to have sufficient cash flows during retirement. Engage your clients in meaningful discussions. The report is a great tool for engaging clients in meaningful discussion and helping them understand what actions they need to take today to ensure they will be able to pay for their goals, including retirement, in the future. 11. Why is the Cash Flow Planner labeled as a Beta? The Cash Flow Planner has undergone rigorous analysis and testing. We take the quality of our product very seriously and extensively test each feature before it is introduced to you. That said, we recognize that there are opportunities to improve. We would like your feedback. Please your recommendations to support@asiwealthmanager.com. 12. What should I do if I have questions about the Cash Flow Planner or find an issue? If you have questions or find an issue, support@asiwealthmanager.com. To help us address issues as quickly as possible, please include: A full description of the issue What you were doing that produced the issue Screenshots that show the issue Advisor Software, Inc All Rights Reserved Page 21 of 21