How to clear non-zero Net Cash Flow and/or Cash Balance values

When the CFM Start Age has been reached in the projections, Snap will make automatic contributions to and withdrawals from the Capital Assets to reach the desired After-Tax Spending (nominal dollars) target.  For various reasons, you may see values under the Net Cash Flow and Cash Balance columns. (Note that these columns will not be used when automatic cash flow management (CFM) is turned off because in that case there is no spending target and there cannot be a net surplus or shortfall without a target spend.  To learn more about automatic cash flow management, please see this article: Automatic or Manual CFM.

In the above example, the RRSP has automatic contributions made prior to retirement. After retirement, the non-registered account has automatic withdrawals made to meet the After-Tax Spending target. 

Let's make some changes to this scenario to show various reasons the Net Cash Flow and Cash Balance columns would be non-zero.

Situations where there is non-zero Net Cash Flow and/or Cash Balance:

  1. There are no Capital Assets entered or contribution limits have been reached.
  2. You have entered an override on the Contribution Column for Capital Asset(s)
  3. There is not enough Income or Capital Assets to cover the expenses, including taxes, salaries, loan payments, etc. 
1

There are no Capital Assets entered or contribution limits have been reached

If no Capital Assets have been entered, any surplus cash will be saved to the Cash Account. Any shortfalls will be covered by a loan tracked under the Cash Balance. To avoid this, go to the Assets page and select Add Capital Asset. If the individual has no Capital Assets yet, enter a placeholder account that will be used in the projections with a Value of $0 and assign the appropriate asset allocation. In this way, you can model projections with savings to accounts that have not been opened yet in real life. For example, if you want to show future TFSA contributions, create a TFSA account that starts in the first year with a $0 balance. Surplus cash in later years can then be contributed to this account by the software.

If no Capital Assets were entered for John's projections above, this is what his Planning page would look like.  

The Cash Balance grows each year until retirement, and then when the Net Cash Flow is negative in 2028, Snap withdraws from the Cash Balance to cover the shortfall. Since there isn't enough money in that account to cover the shortfall, the Cash Balance goes negative in 2028. Snap uses pink highlighting to indicate the years that have a negative Cash Balance

If we now add back only the RRSP account with only $2,000 of available Contribution room for the first year of the projections, here is what happens.

Snap contributes the maximum allowable amount of $2,000 to the RRSP (based on the entered contribution room) in the first year and the rest of the surplus goes to the Cash Balance. Make sure to adjust the RRSP and TFSA contribution room under the Edit Contribution Room button to allow for greater automatic contributions to these accounts.

In the year 2022, the Cash Balance is emptied and Snap contributes as much as possible to the RRSP that year.  In the second year, the RRSP contribution room increased based on 18% of John's employment income from 2022.

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2

You have entered an override on the Contribution Column for Capital Asset(s)

If you enter a specific value in the Contribution column, this is called an override and the cell will be highlighted yellow. If the entered Contribution is less than the available surplus cash, there will be a net positive cash flow that will be saved to the Cash Balance. If the entered Contribution is more than the available surplus cash there will be a net negative Cash Flow (a shortfall) and the Cash Balance may also be negative.  To avoid having any values in the Cash Balance you can clear the manual overrides on the Contribution column.

Option 1: Clear the Overrides

Here, manual savings contributions have been set up. These need to be cleared in order to allow Snap to contribute to or withdraw from these accounts automatically.

Even if we clear just the overrides on the non-registered account, that will prevent the shortfall each year.

Option 2: Delay the CFM Start Age

Another option to avoid the non-zero Net Cash Flow and Cash Balance would be to delay the CFM Start Age to the first year of retirement. In the years before retirement, there is no longer any shortfall because there is no longer a $54,000 After-Tax Spending target. 

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3

There is not enough Income or Capital Assets to cover the After-Tax Spending and other expenses, including taxes, loan payments, etc. 

To cover the After-Tax Spending (nominal dollars) and other expenses, the income will be used first, then withdrawals will be made from the Capital Assets. If there isn't enough income coming in, or enough money in the Capital Assets to cover the outflows, a shortfall will occur. This article provides more detail on the default cash flow management (CFM) logic

After-Tax Spending considerations

You may wish to decrease the After-Tax Spending in the projections or discuss other options to reduce the shortfall with your clients. Here are a few quick tips on what to check to ensure you have entered the After-Tax Spending correctly in the projections. 

  1. Remember that other expenses already entered in the projections should not be included in the After-Tax Spending amount.  If your clients have provided you with a lifestyle spending amount that includes their mortgage payments, subtract the mortgage payment amount and enter the difference under After-Tax Spending. Make sure to enter the mortgage information under the Debts section so it is still accounted for.
  2. Do not index the After-Tax Spending (real dollars) column. The After-Tax Spending (real dollars) should remain constant while the software takes care of indexing with inflation automatically. This value is displayed for you under the After-Tax Spending (nominal dollars) column.
  3. For projections including a spouse, allow Snap to automatically assign a portion of the After-Tax Spending to each spouse. Go to Scenario Setup -> Settings -> Advanced to turn off the option to enter individual client and spouse After-Tax Spending amounts

A note about Debts and Real Assets that are classified as Joint

Debts and Real Assets that are specified as Joint are split 50/50 by the software. This means that each spouse is responsible for half of the annual debt payments and half of any future purchase cost for new real assets. If one spouse does not have enough income or capital assets to support half of the debt payments or purchase price of a new property, it is better to assign this debt or real asset solely to the spouse who can afford the payments.

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