Summary
Timeline Planning allows you to set up general planned spending and one-off expense goals in net terms.
Income sources are set up in gross terms and then converted to net terms by Timeline Planning.
Withdrawals are made from account sources only after income sources have been used up.
Introduction
Navigating the financial landscape of retirement can be complex. Timeline Planning simplifies this by allowing you to set up planned spending, income sources, and withdrawals. This article aims to clarify how each of these elements works within the platform, helping you make more informed financial decisions.
How Planned Spending Works
In Timeline Planning, you can set up general planned spending or one-off expense goals. These values should be entered in net terms. Whether it's a recurring expense during retirement or a future one-time expenditure, Timeline Planning allows you to set these up conveniently.
How Income Sources Work
While planned spending is set up in net terms, income sources are initially set up in gross terms. Timeline Planning then converts these gross income sources into net terms for you. This ensures that the income you're counting on is accurately reflected in your financial plan.
How Withdrawals Work
Withdrawals come into play when your net income sources are not sufficient to cover your planned spending. In such cases, the deficit is met by making withdrawals from your account sources. Advisors can use the cash flow chart to visualize how much is being withdrawn from various accounts to meet spending needs. The Account withdrawal order can be defined on the Settings page.
Example
Let's say you have a planned spending of £25,000 per year and a state pension providing an annual income of £20,000. Timeline Planning first converts this gross income into net terms, which in this example would be £18,514. The remaining amount needed to meet your planned spending, £6,486, would then be withdrawn from your first investment account in the section 'Account withdrawal order'.
Conclusion
Understanding how planned spending, income sources, and withdrawals work in Timeline Planning is crucial for effective financial planning. By setting up these elements accurately, you can have a clearer picture of your financial future and make adjustments as needed.