Automatic or Manual Cash-Flow Management (CFM)

CFM stands for Cash Flow Management, and it's controlled by that blue dot on the left-hand side of the screen that you can move 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. 

Prefer to watch a short video on this topic? Please click here: (VIDEO) The 2 modes of Cash Flow Management (7 min)

In this article:

  1. Automatic CFM
  2. Manual CFM
  3. How to change between manual and automatic CFM
  4. Example Case
1

Automatic CFM

Use this setting if you prefer to enter the client's desired spending amount.

In the years following the selected CFM Start Age, Snap will automatically contribute to (or withdraw from) assets in order to reach the desired after-tax spending 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 selection for the  CFM Start Age, manual cash flow management is enabled. Manual cash flow management means that you will be responsible to enter any contributions to or withdrawals from the assets. In these years, you do not need to enter the desired after-tax spending of the client, and Snap will simply show you the surplus cash that is remaining at the end of the year and assume that it is spent. This amount is displayed under the Ater-Tax Spending column in grey italic font.  This is the default setting before retirement because your client likely knows how much they are saving for retirement, rather than how much they are spending.  Enter their savings contributions directly on the Planning page, and Snap will assume they spend the rest of any surplus cash.

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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 may wish to 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 After-Tax Spending 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 After-Tax Spending for the couple.)

Option 2 - Use the blue icon under the CFM Start Age column

1. On the Planning page, click the blue icon in the column labelled CFM Start Age.

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! Simply enter a value in the above text box that is greater than the age of the client in the final year of the projections. For example, enter age 101 as the year to start automatic cash flow management.

Why would you want to do this? Perhaps you would like to show your client their projected after-tax spending 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 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 60 to 65

Here are the initial projections for a client who is 60 years old and has 5 more years until retirement. The CFM Start Age is currently age 60. 

Automatic contributions/withdrawals start at age 60, which is the first year of the scenario.  Based on this client's cash flow, there are automatic contributions being made to the RRSP in the first 5 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 60 to 64.  During this period, as indicated by the arrow, the After-Tax Spending (real and nominal dollars) is displayed but not editable.  Only values in the blue font can be edited. These After-Tax Spending values will be assumed to be spent. Note also that the Contribution values for the assets (RRSP, TFSA and Non-Reg) are initially set to $0.  There are no longer any automatic RRSP contributions.  

To properly reflect what the client plans to save over the next few years, we have now entered the contributions manually.  You can see in the screenshot below that 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 have entered the After-Tax Spending 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, in order to meet the desired after-tax spending 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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