Retirement Planner Excel Model - Cash Flow Forecasting with Inflation Adjustment
Originally published: 25/06/2018 12:47
Last version published: 19/02/2019 15:40
Publication number: ELQ-77678-5
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Retirement Planner Excel Model - Cash Flow Forecasting with Inflation Adjustment

Create an income generating schedule as well as budget your expenses for retirement.

The premise behind this financial model is to take a look at income generating assets, meaning dividend stocks, treasuries, S&P 500 (without re-investing the dividend), real estate, and/or anything else that returns cash immediately and keeps the principal the same.

Some nice features in the model include a dynamic start month for each of the investments and a full expense schedule so you can see how much cushion you have over time. For the various assets the user will input the total principal investment, any percentage yield (APR). Note that APR is the rate of interest returned per year and alternatively APY is the effect of compounding that interest intra-year. Because this is for retirement and the idea is to use the money you are making on the expenses you have, it doesn't make sense to use APY figures in this model.

The last pice of the template is an inflation adjustment. This is because if we are assuming the investments are for immediate income and we know inflation happens at some rate over time, then you must adjust for a reduction in buying power over time. This is why an inflation adjustment was done to show at what point the current buying power of your investments will end up producing less actual revenue than your expenses.

Note that the inflation calculation is a subjective one. It assumes a compounding effect, which we know is not the case and some years the inflation rate can be negative and sometimes positive. However, it is a good way to at least see and demonstrate that if you are simply living off of dividends than it might not be enough to cover expenses within an inflationary environment.

You will be able to see the cash flow forecast for up to 50 years out in time.

This model also assumes the % rates on your investments don't change over time as well as the principal not changing. It helps with consistence if some things are held constant when you want to see the future effect of a given multi-variable system. It is completely possible that you will have gains on your dividend stocks as well as the real estate investment and/or the S&P. You could also see a rise in treasury rates and if you are rolling them once per year you will see the effect of higher rates, which usually move with inflation.

The reason why this is generally geared toward retirement is because you are often going to see that group of people needing a cash flow stream now to pay for their expenses and they are less worried about growing an investment over the next 20 years that doesn't produce any kind of cash flow stream in the mean time.

When you have a younger person, it may be more advantageous to go for long-term investment approaches with no immediate dividend or revenue stream because it is likely you are working and don't need to live off your money and instead want to grow it so when you do retire it will be able to accomplish the above budget best.

There will be a fully 50 year monthly and annualized summary as well as a quick 10-year summary with charts. The free cash flow that you see being solved for could technically be re-invested and that could end up raising the future cash flows and/or reduce the effect of inflation.

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Further information

Plan out the future cash flows of your retirement.

When using only income generating assets.

When not using income generating assets and not planning for retirement.


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