Automatic or Manual Cash-Flow Management (CFM)

CFM stands for Cash Flow Management, controlled by the radio button under the CFM Start Age column on the Planning page. You can move the CFM Start Age up or down the client's timeline. Once you understand the cash flow in Snap Projections, everything else will fall into place. In this article, we will discuss the 2 types of cash flow management (automatic and manual), how to change from one to another, and why you might want to do that. 

Would you prefer to watch a short video on this topic? Here's a 7-minute overview.

1

Automatic CFM

Use this setting if you prefer to enter the client's desired after-tax lifestyle expenses.

In the years beginning with the selected CFM Start Age, Snap will automatically contribute to (or withdraw from) assets to reach the desired Base Expenses amount. You can change the year that automatic cash flow management starts by adjusting the CFM Start Age

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2

Manual CFM

Use this setting if you prefer to enter the client's planned savings to various investment accounts and assume they spend the rest.

In the years before the selected CFM Start Age you will be responsible for entering any contributions to or withdrawals from the assets.

This is the default setting before retirement because your client likely knows how much they are saving for retirement, rather than how much they spend.  Enter their savings contributions directly on the Planning page, and Snap will assume they spend the rest of any surplus cash. This amount is displayed under the Base Expenses column in grey italic font. 

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3

How to change between manual and automatic CFM

In some cases, you may wish to change the default setting.  For example, you can start automatic cash flow management (CFM) in the first year of projections.  This will allow for contribution and withdrawal decisions to be made automatically for you right away.   You might even like to turn off automatic cash flow management altogether. 

To update the year that automatic cash flow management starts, you will need to use the CFM Start Age column. You can either select a year using the radio buttons or enter the start year using the blue icon at the top of that column. Both options are detailed below.

Option 1 - Use the Radio Buttons

Click the CFM Start Age radio button in the year where you want to start the automatic cash flow management and run the scenario. This will change the Base Expenses value to an editable number (blue font) starting in that year.  (If you have a scenario with a spouse, make sure to go to the Combined page to enter the Base Expenses for the couple.)

Option 2 - Use the gear icon in the CFM section header

1. On the Planning page, click the gear icon in the header of the section labelled CFM.

2. The following popup window will appear.  Enter the age at which to start automatic cash flow management. Click Save.

Tip: Use the blue icon to turn off automatic cash flow management for all years

You can also turn off automatic contributions and withdrawals for all years by unchecking Enable cash flow management for this scenario.

Why would you want to do this? It would allow you to show your client their projected Base Expenses amount for each year based simply on pension income, government benefits and RRIF/LIF minimum withdrawals. In this case, you aren't required to enter a spending target, instead, you can see what your client can spend each year based on this income and no other automatic withdrawals from their accounts. This setting will also prevent any additional automatic savings during retirement.

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4

Example Case

Changing the CFM Start Age from 59 to 65

Here are the initial projections for a client who is 59 years old and has 6 more years until retirement. The CFM Start Age is currently age 59. 

Automatic contributions/withdrawals start at age 59, which is the first year of the scenario.  Based on this client's cash flow, automatic contributions are being made to the RRSP in the first 6 years.  Then, automatic withdrawals start at age 65 from the non-registered account when the Employment Income stops. Automatic contributions and withdrawals follow the default CFM logic.  This client has specific savings contributions they are planning to make before retirement and we want to turn off the automatic contributions. To do this, we change the CFM Start Age to 65 and re-run the scenario

Now the projections look like this:

Manual cash flow management is in place between ages 59 to 64 and the Base Expenses (real and nominal dollars) are displayed but not editable.  These Base Expenses values will be assumed to be spent. The Contribution values for the assets (RRSP, TFSA and Non-Reg) are $0, indicating no automatic contributions.  

Next, we can enter the planned contributions.  These contributions are highlighted in yellow to indicate a manual override.

Automatic cash flow management starts at age 65.  At age 65 and later, we entered the Base Expenses of $54,000. Any extra cash flow will be automatically contributed to the assets according to the default CFM logic.  You can see these automatic savings happening at age 65 when there is an inheritance.  Alternatively, to meet the Base Expense needs of the client, Snap will automatically withdraw funds from the assets as needed.  This is evident at ages 66 and 67 as the non-registered account is automatically withdrawn from to support the spending needs.

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