Financial Strategies Monte Carlo Sample-1

Financial Strategies

A lifestyle report prepared for William Ellison and Yvette Ellison Cash Flow Analysis Including Monte Carlo Simulations Presented by: Ross Mackereth For Evaluation Purposes Only ABC Financial Services Old Grammar School House School Gardens Shrewsbury, Shropshire SY1 2AJ Phone: 01743 248515 Fax: 01743 236214 Email: [email protected]

PLEASE READ CAREFULLY

Important Notes This report illustrates your financial lifestyle, or your hypothetical cash flow and its effects on your net worth. This analysis provides only broad, general guidelines, which may be helpful in shaping your thinking about your planning needs. It can serve as a guide for discussions with your professional advisers. The quality of this analysis is dependent upon the accuracy of data provided by you. Calculations contained in this analysis are estimates only. Actual results may vary substantially from the figures shown. All rates of return are hypothetical and are not a guarantee of future performance of any asset, including insurance or other financial products. All inflation rates are estimates provided by you. This analysis contains very specific computations concerning the value of your assets today. These computations are based on assumptions you provided concerning the value of your assets today and the rate at which the assets will appreciate. These assumptions must be carefully reviewed for their reasonableness. These assumptions are only a "best guess". The actual values, rates of growth, and tax rates may be significantly different from those illustrated. The actual taxes due may be significantly greater or smaller than those illustrated. No guarantee can be made regarding values and taxes when actual appreciation rates and tax rates cannot be known at this time. For illustrative purposes, many assumptions must be made concerning the sale of properties or the change of property ownership. These are for illustrative purposes and not to be considered as legal advice; only your solicitor should provide such advice. No legal or accounting advice is being rendered either by this report or through any other oral or written communications. Please discuss legal and accounting matters directly with your advisers in each of those areas. Because your planning concerns and goals may change in the future, periodically monitoring actual results and making appropriate adjustments are essential components of your program. Annual updating allows a year of estimated values to be replaced with actual results and can be very helpful in your determining whether your plans are on your desired course. Strategies may be proposed during the course of planning, including the acquisition of insurance and other financial products. When this occurs, additional information about the specific product (including a key features document, if required) will be provided for your review.

Presented by: Ross Mackereth For Evaluation Purposes Only

Version 2.0.0 c. 6.0.0.0 30 June, 2009 2 of 25

1 Confirmation of Facts The right plan must start with the right facts. A financial plan must be dynamic; that is, able to change as quickly as your situation changes. Your plan is based on your facts and assumptions. You should be sure that all of the assumptions and facts listed here correctly reflect your situation and desires.

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 3 of 25

CONFIRMATION OF FACTS

Your Facts William Ellison

Yvette Ellison

Age: 47 Male Born: 23 Jan., 1962

Age: 45 Female Born: 09 Dec., 1963

William and Yvette are married. Children and Dependents Name

Date of Birth

Gender

Relationship

Dependent of

Peter Simon

23 Aug., 1992 17 Mar., 1995

Male Male

Child Child

Yvette, William Yvette, William

Salaries Employer

Employee

Williams Salary Yvette Salary

William Yvette

Current Salary

Frequency

Inflation Rate

£5,000 £1,250

Monthly Monthly

3.000% 3.000%

Current Balance

Balance As Of

Interest Rate

£0

06 Nov., 2007

0.000%

£34,290

06 Nov., 2007

5.750%

Current Bank Accounts, Savings, Deposit Account Name

Owner

Cash Account

Yvette, William

On Line Savings Account

William

This asset is the Cash Account

Tax-Efficient Investments Account Name

Owner

Current Balance

Balance As Of

Interest Rate

William's ISAs Yvette's ISAs

William Yvette

£23,420 £19,840

06 Nov., 2007 06 Nov., 2007

6.000% 6.000%

Name/Symbol

Owner

Current Value

Yvette's Unit Trust

Yvette

£26,250

Name/ Symbol

Owner

Current Value

Balance As Of

William's Portfolio

William

£54,360

06 Nov., 2007

Investment Trust

Balance As Of

Rates Div. App. Rate Rate

Basis

£18,750 3.000%1 5.000%

06 Nov., 2007

Stocks Rates Div. App. Rate Rate

Basis

£34,250 4.000%1 4.000%

Investment Bonds Name/Symbol

Owner

Investment Bond

William

Bonds Name/ Symbol

Owner

Government Bond

William

Market Value

Balance As Of

Face Amount

Growth Rate

£50,000

06 Nov., 2007

£27,500

7.000%

Market Value

Face Amount

Coupon Interest

Frequency

Maturity Date

£25,000

£25,000

5.500%

Semiannual

12 Sep., 2014

Retirement Plans Name 1

Owner

Current Balance

Balance As Of

Growth Rate

Owner Contrib.

William

£42,350

06 Nov., 2007

6.000%

£250

Employer Contrib.

£250

Received in Cash

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 4 of 25

CONFIRMATION OF FACTS

Your Facts (Continued) Retirement Plans (Continued) Name

William's Money Purchase Yvette's Personal Pension

Owner

Current Balance

Balance As Of

Growth Rate

Owner Contrib.

Yvette

£24,350

06 Nov., 2007

6.500%

£100

Employer Contrib.

£0

Rental Property Buy to Let Current Value

Balance As Of

Cost Basis

Appreciation Rate

Yvette, William

£275,000

06 Nov., 2007

£195,000

3.000%

Rental Income

Frequency

Monthly Expenses

Annual Expenses

Rental Inflation

£650

Monthly

£0

£1,000

3.00%

Owner

Personal Loan Secured by this Asset Balance as of

Mortgage Balance

Payment

06 Nov., 2007

£125,000

Interest

Interest Rate

Frequency

5.500%

Residences Main Residence Owner

Yvette, William

Current Value

Balance As Of

Cost Basis

Appreciation Rate

£450,000

06 Nov., 2007

£185,000

4.000%

Personal Loan Secured by this Asset Balance as of

06 Nov., 2007

Mortgage Balance

Payment

£85,000

£720

Frequency

Interest Rate

Monthly

5.500%

Life Insurance-Individual Name

Insured

Owner

Beneficiary

Life Insurance

First To Die

William

William

Face Amount

Premium

£250,000

£125

Frequency

Cash Value

Monthly

£0

Disability Insurance-Individual Name

Insured

Owner

William's Personal PHI

William

William

Monthly Benefit

Waiting Period

Benefit Period

Premium

£2,500

90 Days

Age 65

£150

Frequency

Monthly

Essential Living Expenses

Description

Living Expenses

Amount

Frequency

Percent Continuing after First Death

£2,000

Monthly

100%

Amount

Frequency

£1,000

Annual

Percent Percent Continuing Continuing after First after First Disability Retirement

100%

100%

Business Expenses Description

Annual Expense for Buy to Let

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 5 of 25

CONFIRMATION OF FACTS

Your Facts (Continued) Education Expenses Description

Amount

Frequency

Percent of Estimated Aid

University University

£7,000 £7,000

Annual Annual

0% 0%

Debt Liability Name

Owner

Current Balance

Balance As Of

Interest Rate

Loan for Main Residence Loan for Buy to Let

Yvette, William

£85,000

06 Nov., 2007

5.500%

Yvette, William

£125,000

06 Nov., 2007

5.500%

Future Purchase Description

Future Owners

Retirement Villa

Yvette, William

Anticipated Cost

Inflation

Start

£175,000

3.000%

Starting when William retires

Distribute Income to Specific Assets Description

From

Amount

Apply Inflation

William's ISAs

£250

no

Yvette's ISAs

£250

no

Frequency

Amount

Apply Inflation

n/a

n/a

n/a

To

William's ISA contribution Williams Salary Already started and ending when William retires. Yvette's ISA Contribution Yvette Salary Already started and ending when Yvette retires. Reposition Assets Description

From

To

Sell Buy to Let Buy to Let Starting when William retires.

On Line Savings Account

Sweep Transaction Description

From

Sweep Lump Sums

Cash Account

To

On Line Savings Account Already started and ending after the illustration.

Presented by: Ross Mackereth For Evaluation Purposes Only

Threshold

Min, Trans.

£7,000

£0

Apply Frequency Amount Inflation

Monthly

100%

n/a

30 June, 2009 6 of 25

2 Financial Statements What is your financial situation today? If everything goes as planned, what will it be like in a few years? Estimated balance sheets and other financial reports are included in this section.

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 7 of 25

FINANCIAL STATEMENTS

Your Current Situation—Balance Sheet View William

Assets Liquid Assets Cash Account On Line Savings Account William's Portfolio William's ISAs Yvette's ISAs Yvette's Unit Trust Investment Bond Retirement Plans William's Money Purchase Yvette's Personal Pension Fixed Assets Government Bond Buy to Let Residence Main Residence Total Assets Today Liabilities Mortgages Loan for Main Residence Loan for Buy to Let Total Liabilities Today Net Worth Your Assets Less Your Liabilities Total Net Worth Today

Presented by: Ross Mackereth For Evaluation Purposes Only

Yvette

Joint

£0 £34,290 £54,360 £23,420 £19,840 £26,250 £50,000

£34,290 £54,360 £23,420 £19,840 £26,250 £50,000 £42,350

£42,350 £24,350

£24,350 £25,000

£229,420

£70,440

Total

£275,000

£25,000 £275,000

£450,000 £725,000

£450,000 £1,024,860

£85,000 £125,000 £210,000

£85,000 £125,000 £210,000

£1,024,860 £210,000 £814,860

30 June, 2009 8 of 25

FINANCIAL STATEMENTS

Balance Sheet Values at End of Year 2009

2010

2011

2012

2013

£1,000 £38,570 £58,822 £28,307 £24,251 £27,805 £51,397

£1,000 £40,848 £61,092 £33,136 £28,831 £28,584 £52,939

£1,000 £41,600 £63,449 £38,264 £33,693 £29,385 £54,570

£1,000 £42,359 £65,898 £43,708 £38,855 £30,208 £56,295

£237 £43,127 £68,441 £49,488 £44,335 £31,055 £58,119

£51,489 £27,907

£61,557 £30,876

£72,407 £33,997

£84,091 £37,278

£96,662 £40,726

£25,000 £292,467

£25,000 £301,241

£25,000 £310,278

£25,000 £319,587

£25,000 £329,174

£488,313

£507,846

£528,160

£549,286

£571,258

£1,115,329

£1,172,950

£1,231,804

£1,293,564

£1,357,622

Mortgages Loan for Main Residence Loan for Buy to Let

£76,269 £135,724

£71,710 £135,724

£66,894 £135,724

£61,806 £135,724

£56,431 £135,724

Totals

£211,993

£207,434

£202,618

£197,530

£192,155

Net Worth

£903,336

£965,516

£1,029,186

£1,096,034

£1,165,466

Assets Liquid Assets Cash Account On Line Savings Account William's Portfolio William's ISAs Yvette's ISAs Yvette's Unit Trust Investment Bond Retirement Plans William's Money Purchase Yvette's Personal Pension Fixed Assets Government Bond Buy to Let Residence Main Residence Totals

Liabilities

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 9 of 25

3 Cash Flow Analysis—Funding Your Lifestyle This analysis of the cash flow process illustrates your needs between now and retirement. In order to help you clearly see both the opportunities and obstacles within your current financial situation, this section of the analysis of your cash flow answers the following questions: • • • • • • •

What does "maintaining your lifestyle" mean? How does your cash flow process work? What incoming cash can you expect to receive? What outgoing payments can you expect? How will your cash flow handle unexpected payments and fluctuations? How will your cash flow affect your assets? How will your net worth (the result of your cash flow) change?

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 10 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Funding Your Lifestyle This cash flow analysis examines all of the financial items that are part of your lifestyle. It simulates your typical spending and saving habits in order to determine (a) how you would meet your financial obligations and (b) what you would have left over for savings or investment. Maintaining Your Lifestyle In financial terms, maintaining your lifestyle means being able to meet your expected outgoing payments so that you can live in the manner to which you are accustomed. Expenses typically increase with the general cost of living or inflation. Cash Flow Analysis Examining your cash flow on a detailed monthly basis helps answer two essential questions: One, will I have enough money? And, two, if there is a problem, how severe is the shortfall? While it's not a likely scenario, this section of your analysis assumes that everything goes as planned, which is helpful in evaluating your present situation. This section assumes that both of you live until retirement. The following payments are necessary for you to maintain your lifestyle: • Basic lifestyle expenses • Retirement Villa for Yvette and William costing £175,000 (value today) (starting when William retires) • Education for Peter • Education for Simon • Make payments on all loans Assumptions You have defined retirement as the date when William reaches age 55. General inflation rate for analysis: 3%. Some assets are essential for your lifestyle. Successfully maintaining your lifestyle means not using any portion of the assets you designated as "Do Not Use" when defining your priorities. • Main Residence • Buy to Let • Retirement Villa

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 11 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Your Cash Flow Process Cash flow is a simple, monthly process. You receive money from outside sources and deposit that money into your bank account. You use that account to pay your expenses and cover your lifestyle expenses. What you do not spend you save, invest, or use to purchase other assets. If your expenses exceed your income one month, you take some money out of the savings, sell an asset, or borrow the funds to pay the expenses. Cash flow analysis is the detailed study of this monthly process. Your monthly cash flow process involves the following steps: • Determine your expected incoming cash • Determine your expected outgoing payments • Compare incoming and outgoing cash: if outgoing payments exceed incoming cash, use an asset or borrow money to cover the shortage • Adjust asset values as necessary Discretionary Spending Some of your expenditures fluctuate based on the funds available to you. When your incoming cash exceeds your outgoing payments, a portion of the excess cash may be used for discretionary spending. Cash flow analysis helps you identify and understand your discretionary spending, which can improve your financial situation. Your Financial Lifestyle Retirement Villa Simon Ed. Peter Ed. Lifestyle Expenses Today

Retirement

2043

Successfully funded through cash flow Cash flow was not sufficient without using assets designated as "Do Not Use"

Your cash flow is sufficient.

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 12 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Assets Used for Cash Flow Priority and Sources of Funds You have indicated your priorities and desired uses of certain assets. If there is not sufficient cash flow to pay your outgoing payments during a particular month, then these assets will be considered in the order shown below. The use of some assets would cause a significant change in your lifestyle: such assets are marked "Do Not Use" or the desired use is indicated Asset Cash Account On Line Savings Account William's ISAs Yvette's ISAs William's Portfolio Yvette's Unit Trust Investment Bond Government Bond Main Residence Buy to Let William's Money Purchase Yvette's Personal Pension Retirement Villa

Limit Uses to Unrestricted Unrestricted Unrestricted Unrestricted Unrestricted Unrestricted Unrestricted Unrestricted Do Not Use Do Not Use Retirement Retirement Do Not Use

Value of Assets The cumulative effects of your cash flow change the value of your assets. The effects of cash flow include the addition of new assets or savings, the use of all or a portion of some assets to pay expenses, and appreciation or changes in the value of your assets.

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 13 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Incoming Cash Expected Expected Income £120,000

100,000

80,000

60,000

40,000

20,000

0

2014

2019

Salaries State Benefits Retirement Distributions

2024

2029

2034

2039

Other Income Earnings, Interest, Dividends

The illustration assumes everything goes as anticipated. It does not reflect (a) liquidations or unplanned withdrawals from your assets or (b) new loan proceeds that may be necessary during any month that expenses exceed income.

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 14 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Incoming Cash Expected Incoming Cash Flow Other1 Income

State1 Benefits

Earnings (Cash, Dividends)

Retirement Plan Distributions

Total Expected Income

Year

Salary

2009 2010 2011 2012 2013

£43,750 77,250 79,568 81,955 84,413

£4,550 9,579 8,275 8,523 8,779

£0 0 0 0 0

£3,983 5,933 6,047 6,166 6,288

£0 0 0 0 0

£52,283 92,763 93,890 96,643 99,480

2014 2015 2016 R 2017 2018

86,946 89,554 92,241 19,002 17,941

9,042 9,314 9,593 823 0

0 0 0 0 0

6,415 5,172 5,308 4,075 4,221

0 0 0 41,309 21,455

102,403 104,039 107,142 65,208 43,617

2019 2020 2021 2022 2023

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

4,373 4,531 4,694 4,863 5,038

8,580 8,580 8,580 8,580 8,580

12,953 13,111 13,274 13,443 13,619

2024 2025 2026 2027 2028

0 0 0 0 0

0 0 0 0 0

0 0 0 0 11,468

5,220 5,409 5,604 5,807 5,996

8,580 8,580 8,580 8,580 8,580

13,801 13,989 14,184 14,387 26,044

2029 2030 2031 2032 2033

0 0 0 0 0

0 0 0 0 0

12,715 23,328 24,028 24,749 25,491

5,634 5,278 5,065 4,807 4,502

8,580 8,580 8,580 8,580 8,580

26,929 37,187 37,673 38,136 38,574

2034 2035 2036 2037 2038

0 0 0 0 0

0 0 0 0 0

26,256 27,044 27,855 28,691 29,551

4,146 3,733 3,259 2,717 2,103

8,580 8,580 8,580 8,580 8,580

38,982 39,357 39,694 39,988 40,234

2039 2040 2041 2042 2043

0 0 0 0 0

0 0 0 0 0

30,438 31,351 32,292 33,260 34,258

1,521 960 344 1 0

8,580 8,580 8,580 8,580 8,580

40,539 40,891 41,216 41,842 42,838

The illustration assumes everything goes as anticipated. It does not reflect (a) liquidations or unplanned withdrawals from your assets or (b) new loan proceeds that may be necessary during any month that expenses exceed income.

1

Other Income includes any estimated tax refunds for the prior year. R-Retirement assumed to begin in this year. Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 15 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Expected Outgoing Payments Expected Outgoing Payments £280,000

240,000

200,000

160,000

120,000

80,000

40,000

0

2014

2019

Basic Living Expenses Loan Payments Discretionary Spending

2024

2029

2034

2039

Education & Specific Needs Funding Retirement Plan Contributions Total Additional Income Tax

Outgoing payments begin with compulsory expenses (such as taxation) and continue through your discretionary spending.

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 16 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Expected Outgoing Payments Outgoing Payments

Year

Basic Expenses

Education & Specific Needs

Retirement Loan Plan Payments Contributions

Discre- Tax Payments tionary and1 Spending Deductions

Total Outgoing Payments

2009 2010 2011 2012 2013

£16,925 29,050 29,822 30,618 31,438

£0 3,092 7,865 8,337 12,520

£9,394 16,105 16,105 16,105 16,105

£2,450 4,290 4,383 4,478 4,577

£5,969 11,070 3,718 4,334 2,037

£13,114 23,156 27,571 28,381 29,211

£47,853 86,763 89,465 92,253 95,887

2014 2015 2016 R 2017 2018

32,282 33,151 34,047 253,587 32,815

14,832 9,930 10,525 6,508 0

16,105 16,105 16,105 9,262 8,640

4,678 4,782 4,890 1,200 1,100

8,126 5,530 6,167 0 0

30,066 31,003 31,675 7,701 30,348

106,089 100,501 103,409 278,258 72,902

2019 2020 2021 2022 2023

33,754 34,722 35,718 36,745 37,802

0 0 0 0 0

8,640 8,640 8,640 958 0

0 0 0 0 0

0 0 0 0 0

942 861 551 485 494

43,336 44,223 44,909 38,187 38,296

2024 2025 2026 2027 2028

38,891 40,013 41,168 42,358 43,584

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

504 522 541 560 581

39,395 40,535 41,709 42,919 44,165

2029 2030 2031 2032 2033

43,972 44,647 45,986 47,366 48,787

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1,838 1,843 2,236 2,214 2,188

45,810 46,490 48,222 49,580 50,975

2034 2035 2036 2037 2038

50,251 51,758 53,311 54,910 56,558

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

2,157 2,120 2,079 2,030 1,976

52,407 53,879 55,389 56,941 58,533

2039 2040 2041 2042 2043

58,254 60,002 61,802 63,656 65,566

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1,913 1,821 1,703 1,574 1,499

60,168 61,823 63,505 65,230 67,064

Outgoing payments begin with compulsory expenses (such as taxation) and continue through your discretionary spending.

1

All PAYE tax deductions plus additional tax payments (other income and capital gains tax). Refunds are shown as other income in the year received. R-Retirement assumed to begin in this year. Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 17 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Net Adjustments for Cash Flow Net Adjustments for Year Based on Monthly Cash Flow Year

Expected Income

New Loan Proceeds

Net Assets Used for Cash Flow

2009 2010 2011 2012 2013

£52,283 92,763 93,890 96,643 99,480

£0 0 0 0 0

£0 0 0 0 0

-----------

£47,853 86,763 89,465 92,253 95,887

2014 2015 2016 R 2017 2018

102,403 104,039 107,142 65,208 43,617

0 0 0 0 0

3,686 0 0 213,050 29,285

-----------

106,089 100,501 103,409 278,258 72,902

2019 2020 2021 2022 2023

12,953 13,111 13,274 13,443 13,619

0 0 0 0 0

30,382 31,112 31,635 24,744 24,678

-----------

43,336 44,223 44,909 38,187 38,296

2024 2025 2026 2027 2028

13,801 13,989 14,184 14,387 26,044

0 0 0 0 0

25,595 26,546 27,525 28,532 18,120

-----------

39,395 40,535 41,709 42,919 44,165

2029 2030 2031 2032 2033

26,929 37,187 37,673 38,136 38,574

0 0 0 0 0

18,880 9,303 10,549 11,444 12,401

-----------

45,810 46,490 48,222 49,580 50,975

2034 2035 2036 2037 2038

38,982 39,357 39,694 39,988 40,234

0 0 0 0 0

13,425 14,522 15,696 16,953 18,299

-----------

52,407 53,879 55,389 56,941 58,533

2039 2040 2041 2042 2043

40,539 40,891 41,216 41,842 42,838

0 0 0 0 0

19,629 20,932 22,289 23,388 24,226

-----------

60,168 61,823 63,505 65,230 67,064

Annual Total Outgoing Shortfall Payments

R-Retirement assumed to begin in this year. Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 18 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Will Cash Flow Provide Needed Outgoing Payments? By combining the information from the previous graphs, it is easy to see how your cash flow process works. Expected income is shown on top of the total outgoing payments. Any portion of payments remaining is paid by the cash flow process—using assets you have designated. When the cash flow process cannot provide the needed payments without using assets you designated as “Do Not Use,” then you have failure with the needed amount shown as a shortfall. Summary of Cash Flow Process £280,000

240,000

200,000

160,000

120,000

80,000

40,000

0

2014

2019

Total Expected Income Lifestyle Shortfall for Year

2024

2029

2034

2039

Net Outgoing Payments from Cash Flow

Expected Income—–the sum of all income items before the cash flow process is applied to use any assets or new loans to meet outgoing payments Outgoing Payments from Cash Flow Process—the portion of outgoing payments that were required to be paid from using various assets or new loans Shortfall—the amount needed in a year to pay all desired outgoing payments to maintain your lifestyle, but without using any assets you designated as “Do Not Use”

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 19 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Cash Flow & Net Worth Cash Flow & Net Worth

Year

Expected Total Outgoing Income Payments

Net Paid from Cash Flow1 Process

End of Year2 Assets

End of Year Liabilities

Cumulative Annual Shortfall

Net Worth

2009 2010 2011 2012 2013

£52,283 92,763 93,890 96,643 99,480

£47,853 86,763 89,465 92,253 95,887

£0 0 0 0 0

£1,115,329 1,172,950 1,231,804 1,293,564 1,357,622

£211,993 207,434 202,618 197,530 192,155

-----------

£903,336 965,516 1,029,186 1,096,034 1,165,466

2014 2015 2016 R 2017 2018

102,403 104,039 107,142 65,208 43,617

106,089 100,501 103,409 278,258 72,902

3,686 0 0 213,050 29,285

1,417,790 1,489,387 1,564,796 1,357,745 1,327,473

186,477 180,479 174,142 31,724 24,652

-----------

1,231,312 1,308,908 1,390,654 1,326,021 1,302,820

2019 2020 2021 2022 2023

12,953 13,111 13,274 13,443 13,619

43,336 44,223 44,909 38,187 38,296

30,382 31,112 31,635 24,744 24,678

1,354,323 1,381,219 1,408,288 1,443,075 1,479,051

17,182 9,290 953 0 0

-----------

1,337,142 1,371,929 1,407,335 1,443,075 1,479,051

2024 2025 2026 2027 2028

13,801 13,989 14,184 14,387 26,044

39,395 40,535 41,709 42,919 44,165

25,595 26,546 27,525 28,532 18,120

1,515,209 1,551,481 1,587,803 1,624,099 1,672,070

0 0 0 0 0

-----------

1,515,209 1,551,481 1,587,803 1,624,099 1,672,070

2029 2030 2031 2032 2033

26,929 37,187 37,673 38,136 38,574

45,810 46,490 48,222 49,580 50,975

18,880 9,303 10,549 11,444 12,401

1,721,153 1,782,098 1,844,331 1,908,278 1,973,952

0 0 0 0 0

-----------

1,721,153 1,782,098 1,844,331 1,908,278 1,973,952

2034 2035 2036 2037 2038

38,982 39,357 39,694 39,988 40,234

52,407 53,879 55,389 56,941 58,533

13,425 14,522 15,696 16,953 18,299

2,041,366 2,110,525 2,181,433 2,254,085 2,328,475

0 0 0 0 0

-----------

2,041,366 2,110,525 2,181,433 2,254,085 2,328,475

2039 2040 2041 2042 2043

40,539 40,891 41,216 41,842 42,838

60,168 61,823 63,505 65,230 67,064

19,629 20,932 22,289 23,388 24,226

2,404,819 2,483,337 2,564,095 2,647,159 2,732,531

0 0 0 0 0

-----------

2,404,819 2,483,337 2,564,095 2,647,159 2,732,531

Cash Flow Affects the Value of Assets When Outgoing Payments exceed the Expected Income, existing assets must be used. If Expected Income exceeds Outgoing Payments then the surplus creates additional assets. These cash flow transactions are reflected in your assets. Net Worth is the difference in Assets and Liabilities.

1

Net change in existing assets due to appreciation, depreciation, reinvested earnings, and other changes. Assets equal total income less outgoing payments plus net effects of cash flow plus existing assets. R-Retirement assumed to begin in this year. 2

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 20 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Net Worth Net Worth Equals Assets Less Liabilities • Net worth reflects the ongoing cash flow process • Examining cash flow focuses on the monthly finances • Examining net worth focuses on the long-term overall effects Net Worth £2,800,000

2,400,000

2,000,000

1,600,000

1,200,000

800,000

400,000

0

2014

2019

2024

2029

2034

2039

Net Worth

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 21 of 25

CASH FLOW—YOUR LIFESTYLE PRIOR TO RETIREMENT

Conclusions Based on the expenses that you specified, your present plans would be sufficient to maintain your lifestyle. The following options may help you optimize your cash flow: Reduce Expenses • Determine whether you can comfortably reduce your expenses by reexamining each individual expense • Consider reducing your discretionary spending and increasing your savings • Are you claiming all the tax allowances to which you are entitled? Invest in one of the many inexpensive tax guides at your local book shop before you complete your next tax return. Refinance Loans • •

You may reduce your monthly expenses by (a) refinancing a loan to obtain a lower rate or (b) extending the terms of a loan Consider the fees and any points associated with individual loans when comparing payments

Pay Off Loans •

Reduce your monthly expenses by selling a slow growing asset and using the proceeds to pay off your loans

Downsize • Sell your current home and buy a home or apartment of lesser value • Reduce or eliminate your mortgage payment • Reduce other monthly expenses, such as home maintenance, insurance, and property taxes Change Some Investments • • •

Examine your investment portfolio and consider options that might increase your yields Consider differences in risk, returns, and your time horizons before making changes Consider all taxation, fees and other important investment characteristics

Reexamine Your Sensitivity to Life's Major Uncertainties • • • •

Is it possible that you will outlive your wealth during retirement? How would the unexpected death of you or your spouse affect the lifestyle of the survivors? What would happen to your plans if you or your spouse became disabled? Are you financially prepared for an extended nursing home stay during retirement?

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 22 of 25

4 Probabilities—Planning for Uncertainties Life's uncertainties may prevent the success of your planning. There are a number of factors that you cannot directly control, yet these uncertainties must be considered, especially the uncertainty of economic conditions. Although historical averages of investment yields can be good indicators of a plan's success over time and represent many years, some years will be better and some years will not be as good. Will your plan still work if several bad years are experienced early? What if several bad years precede your expected retirement? Could your plan succeed if several bad years occurred during your retirement? Is your plan likely to be successful regardless of the changes and uncertainties of the economic conditions?

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 23 of 25

PROBABILITIES—PLANNING FOR UNCERTAINTIES

Maintaining Your Lifestyle Success means not running out of money or using any of your assets you designated as "Do Not Use". If your plan runs out of money, it is considered a cash flow failure. In addition to basic lifestyle expenses, your plan considers your other specific needs. Your plan has a 63% chance of running out of money based on 1000 simulations for the next 35 years. The Cash Flow Analysis section shows details to help with further planning. What Are The Chances Of Running Out Of Money? Out of Cash Sufficient Cash 1000 Simulations 38% did not run out of money

1%

99%

Specific Needs Considered Success for a specific need means that its funding was completed prior to running out of money. The funding of these specific needs is considered in the overall success of maintaining your lifestyle. The Cash Flow Analysis section and the Education Funding Section show details to help with further planning. When Will You Run Out of Money? Successful Simulations through Age 100%

80

60

40

20

0

54

61

68

75

Cumulative Successes Based on 1000 Simulations

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 24 of 25

PROBABILITIES—PLANNING FOR UNCERTAINTIES

Expected Values Financial events seldom, if ever go exactly as planned due to a number of uncertainties beyond your control. By using the probabilities of these uncertainties and making numerous simulations of your facts, it is possible to determine likely results and a range of those results. This provides you with a more realistic expectation. Uncertainties Considered • Changes in the economy such as ups and downs of the stock market • Cost of living changes • Education inflation rate 1,000 Simulations Your information was calculated 1,000 times exposing each year to the probability of these uncertainties, and the affects on the continuing calculations. As values varied, significant effects on cash flow could result. Each simulation was a realistic, possible result of your financial situation. Analysis of these simulations shows your expected results within a likely range. Average Net Worth and Expected Range1 £10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

0

54

Low Net Worth

61

Average Net Worth

68

75

High Net Worth

The average net worth of £2,504,983 based on 1000 simulations has a relative error of 3.92%.2

1

2

For the 1000 simulations, 70% of the results were between the High Net Worth and the Low Net Worth. Eighty-five percent of the results were above the Low Net Worth. Average result equals the means of all results; high net worth result is the 85th percentile (85% of the results were less than this value); and low net worth is the 15th percentile (15% of the results were less than this value). Supported by standard statistical theory, the relative error indicates a probability of greater than 99% that these values represent the true average result. Results cannot be guaranteed but are statistical measures applied to the results of a large number of simulations. The relative error of the average net worth for an event relates to the number of simulations in which the event occurs. Increasing the number of simulations will reduce the relative error.

Presented by: Ross Mackereth For Evaluation Purposes Only

30 June, 2009 25 of 25