Default automatic CFM Logic

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In this article:

  1. Using the CFM Start Age to enable Automatic Cash Flow Management
  2. A Quick Summary of the Default CFM Logic and an Example
  3. A Detailed Summary of the Default CFM Logic
    1. Accumulation years
    2. Decumulation years
  4. Options to change the Default CFM Logic
1

Using the CFM Start Age to enable Automatic Cash Flow Management

By default, Snap enables the automatic cash flow management (CFM) functionality at the retirement age. No automatic contributions or withdrawals (except for the required RRIF/LIF income) are made before the CFM Start Age. Before this age, you can manually enter the planned contributions to various retirement savings accounts, and any surplus cash is assumed to be spent. 

This article explains the logic that Snap follows in the years after the CFM Start Age has been enabled. Therefore, in the example used below, we have enabled the CFM Start Age in year one so that automatic contributions and withdrawals apply for all years of the projections.  

When you enter a value for the client's Base Expenses (real dollars) and run the scenario, Snap will automatically contribute to or withdraw from the assets following a default order of contributions and withdrawals to various account types.  We call this the default cash flow management (CFM) logic.
2

A Quick Summary of the Default CFM Logic and an Example

Quick Summary

  • Accumulation years: Snap will contribute any surplus cash to the accounts in the following order: RRSP, TFSA, Non-Registered.   
  • Decumulation years: Snap will withdraw from the accounts to reach the spending target in the following order: Non-Registered, TFSA, RRSP. 
The CFM Order section can be a helpful visual cue for the default order of contributions and withdrawals. To display this section on the Planning page, click the blue gear icon in the Financial Assets header and select Show the CFM Order column for this scenario.

Example

Here is an example that shows the default logic in action. Notice that the CFM Start Age radio button is selected in the first year of the projections (highlighted by the blue box outline).  Therefore, the default contribution and withdrawal order will apply from the first year. 

In the accumulation years when John is still working (noted by the pink outline), Financial Asset contributions are made automatically if there is a surplus.  In this example, John's Base Expenses are $54,000 and his income is $100,000 per year.  After CPP/EI deductions are made and John pays his expected income tax, the surplus cash is saved to his RRSP and TFSA accounts up to their available contribution room, $16,200 and $7,000 respectively.  Then a small contribution of $64 is made to the non-registered account with the remaining surplus.

In the decumulation years when John is retired (noted by the black outline), withdrawals are taken automatically from the Non-Registered account to cover his entire spending need. Withdrawals from other account types start once the Non-Registered account is depleted, or when the RRSP converts to a RRIF account.  Exceptions to the order of withdrawals may occur based on factors such as forced registered account minimum withdrawals and registered account withdrawals up to the basic personal amount for tax optimization purposes. These exceptions are detailed below.  

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3

A Detailed Summary of the Default CFM Logic

a. Accumulation years

If the after-tax cash (ATC) exceeds the annual expenses, we have a Surplus.

Snap will start contributing the surplus to assets in the following way:

  1. If RRSP contribution room is available, Snap will contribute to the RRSP until the maximum contribution room is reached. 
  2. If TFSA contribution room is available, Snap will contribute to the TFSA until the maximum contribution room is reached. 
  3. Then, Snap will contribute the remaining cash to the Non-Registered accounts. 
  4. If Non-Registered accounts are not included, Snap will contribute the remaining cash to the Cash Balance.
  5. The contributions will continue every year until no cash surplus is left.

NOTES: By default, if there are multiple accounts of the same type, Snap will contribute to them on a proportional (by value) basis. This can be changed to sequential contributions using the CFM Method setting.

b. Decumulation years

If the after-tax cash (ATC) is less than the annual expenses, we have a Shortfall.

Snap will start withdrawing from assets to cover the shortfall in the following way:
  1. Snap will withdraw from RRIF/LIF accounts when the RRIF/LIF minimum withdrawals are required.
  2. If the RRIF hasn't started yet or there is no taxable income, Snap will withdraw from RRSP/RRIF up to the personal amount (*).
  3. Then, Snap will withdraw from the Non-Registered accounts. (If there is a positive Cash Balance, Snap will withdraw from this non-registered asset first.)
  4. Then, Snap will withdraw from the TFSA accounts.
  5. Then, Snap will withdraw from the RRSP or RRIF/LIF over the RRIF/LIF minimums.
  6. The withdrawals will continue until all assets are depleted and then the Shortfall will accumulate in the Cash Balance.
(*) Snap will withdraw approximately up to the personal amount, provincial or federal, whichever is less. Snap will withdraw more than the LIF minimum, up to the personal amount or LIF maximum.

NOTES: By default, if there are multiple accounts of the same type, Snap will withdraw from them on a proportional (by value) basis. This can be changed to sequential withdrawals using the CFM Method setting.

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4

Options to change the Default CFM Logic

The default logic that Snap follows is based on reducing the client's taxes in each given year. This optimization works well for many cases, however, you can modify the default algorithm and achieve an even more desirable order depending on what you wish to optimize for, given the client's goals, needs, and priorities. 

Options to change the Default CFM Logic:

  1. Disable automatic cash flow management (CFM) to turn off all automatic contributions and withdrawals. 
  2. Change the underlying logic used for the order of contributions and withdrawals using the CFM order column.
  3. Adjust the CFM Method to refine how deposits and withdrawals are made with multiple accounts of the same Type (for example, a client with two TFSAs).
  4. Enter manual overrides to edit the contribution/withdrawal amounts under the Contribution(Withdrawal) column for each asset. 
  5. Use Advanced Options to prevent the automatic allocation of surplus funds to the Financial Assets. Use with caution!

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