Changing the Default CFM Logic

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 for various account types. We call this the default cash flow management (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.

In the years before the CFM Start Age, automatic cash flow management (CFM) is disabled. This means there are no automatic contributions or withdrawals during this period (except for mandatory withdrawals from registered assets and specified contributions to Group Assets). You can adjust the CFM Start Age to disable automatic CFM before that year. Or you can disable automatic CFM for all years using the blue icon at the top of the CFM Start Age column.

In the following example, the CFM Start Age is John's Retirement Age and there are no automatic contributions or withdrawals to any of the Financial Assets until then. John wants to spend $54,000 after tax each year in retirement. At the CFM Start Age, this amount is entered into the Base Expenses (real dollar) column and Snap starts making automatic withdrawals as needed. Here, the Non-Registered account shows automatic withdrawals.

For more detailed steps on automatic and manual cash flow management, please click here.

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The underlying default logic is to automatically contribute to RRSPs first, then TFSAs, then Non-Registered assets. Automatic withdrawals are made in reverse order. To change this default order, first, enable the CFM Order column for this scenario.  Click the blue gear icon in the Financial Assets header on the Planning page and select the appropriate checkbox.

A new column will appear on the Planning Page called CFM Order. The default Contributions order is displayed in this column as R, T, N (Registered, TFSA, Non-Registered). The default Withdrawals order is displayed as the reverse, N, T, R (Non-Registered, TFSA, Registered).

You can make changes by clicking the text under the Contributions or Withdrawals column, selecting a new order, and copying down to a certain age.

Using the same example as above, we have moved the CFM Start Age to the first year of the projections, age 59 for John. Then we have chosen to contribute any surplus to the assets in the order of TFSA, Non-Registered, RRSP (T, N, R). Withdrawals at retirement come first from the RRSP, then Non-Registered, then TFSA. (R, N, T).

Using the CFM Order Column to change the default logic is a broad-stroke method. A type of account must be fully depleted before Snap withdraws from another type of account. To fine-tune contributions and withdrawals with proportional amounts, overrides can be used.

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For plans with multiple accounts of the same Type (e.g., a client with two TFSAs) the default logic is to contribute to or withdraw from the accounts on a proportional basis. You can change this default by switching the CFM Method from Proportional (based on value) to Sequential (based on order).

For example, a $10,000 automatic contribution is being made to 2 non-registered accounts. The first has a value of $50,000 and the second has a value of $150,000.

With Proportional Allocation, the contribution to Account 2 is triple the contribution to Account 1.

With Sequential Allocation, the contribution goes entirely to Account 1.

The CFM Method applies to both contributions and withdrawals.

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You can override both the default CFM logic or the CFM Order by entering custom amounts for contributions and withdrawals directly on the Planning page.

An overridden contribution or withdrawal is evident by the yellow background of the cell and the small "x" in the cell. Here is an initial example where overrides have been entered to make RRSP and TFSA contributions until retirement and RRSP withdrawals have been specified in retirement.

In the years when John is still working, he plans to save $12,000 to his RRSP and $3,000 to his TFSA annually. These contributions have been entered manually, as indicated by the yellow highlighting under each account's Contribution (Withdrawal) column.

Age 65 is the CFM Start Age, and it is at this point that the Default CFM logic starts. The default withdrawals come first from the Non-Registered assets, then TFSA, then RRSP. A contribution override of -$20,000 per year has been entered for the RRSP account forcing a $20,000 withdrawal. The remaining after-tax cash is automatically withdrawn from the Non-Registered account to reach the $54,000 Base Expenses (real dollar) value.

You can also use overrides to block automatic contributions and withdrawals from a specific account. For example, to stop Snap from withdrawing from a specific Non-Registered account, we have entered a $0 override here until the second non-registered account has been depleted. Snap bypasses that account and takes withdrawals from the next available asset types, the other Non-Registered account, and then from the TFSA.

Overrides are useful when you want to make a different contribution and withdrawal decision for a specific account. If you want to change the overall order of contributions and withdrawals throughout the projections, changing the CFM Order will be the easiest option.

To create an override, click the value under the Contribution (Withdrawal) column for the asset and enter the details in the pop-up window. Enter the Amount (positive for contributions and negative for withdrawals), select Copy down until age, and click the blue checkmark. Then run the scenario to update the projections.

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You can elect to stop allocating cash flow surpluses and positive cash balances to Financial Assets and instead assume the surplus is spent, or choose to contribute the surplus to the Cash Balance.

Advanced Options for Cash Flow Management are accessible by clicking the blue gear icon under the CFM header on the Planning page.

Scenario Setup -> Settings -> Cash Balance -> Advanced Options must also be adjusted.

With this setting checked, the surplus cash is saved to the Cash Balance and spent later in the projections if needed.

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