Cashflow modelling: how the retirement planner works

The planner works out a retirement plan one UK tax year at a time. For each year it adds up income from every source, works out the tax due, takes off spending, then saves any surplus or draws on savings and pensions to cover a gap, until the last person in the plan reaches the age they are planned to. The same inputs always give the same results.

The model follows the settings you give it. It does not choose assumptions for you and it does not tell you what to do. Every result is an estimate built on assumptions that will turn out wrong in some way, so read the numbers as "what these assumptions lead to", not as a forecast.

Tax rules change. The figures used here are the rules in force and the changes already in legislation at the time of writing. If something on this page looks out of date or wrong, please tell us at support@lifecashflow.co.uk.

What is cashflow modelling?

Cashflow modelling is working out, year by year, the money that comes in, the tax due on it, the money that goes out and what is left in each account, for a set of assumptions about the future. A retirement cashflow model shows whether, on those assumptions, income and savings meet the spending entered, and for how long.

It answers "what do these assumptions lead to?", not "what will happen?" or "what is the right thing to do?". Changing an assumption and comparing the results is how a model like this is usually explored.

What does the planner calculate?

The planner runs one calculation for each UK tax year, from the current tax year until the last person in the plan reaches the age they are planned to. The same inputs always give the same results. There is no random element.

In each year it works out income from every source, the tax and National Insurance due on it, what is spent, what is saved or withdrawn, and the balance of every account at the end of the year.

How does the planner count tax years and ages?

Everything is calculated by UK tax year, which runs from 6 April to 5 April. A tax year is named after the year it starts, so 2026/27 begins on 6 April 2026. The first year of a projection is the tax year that contains today's date.

A person's age in each tax year is that year minus their birth year. The birth month is used only to work out State Pension age. Each person is planned to an age you choose, 90 unless you change it. The model treats them as living to that age and not beyond it. Real lifespans are uncertain, and that uncertainty is one of the larger limits on what any projection can say.

For each person, every year falls into one of four phases: working, part-time work, retired, or deceased. Full-time earnings stop at the retirement age you set. Part-time earnings, if you add them, run until the age you give.

How do inflation and "today's money" work?

Most amounts are entered in today's money, meaning the prices and tax figures of the current tax year. The projection grows each amount into the pounds of the year it applies to. Amounts that rise with inflation use the inflation assumption, 2.5% a year unless you change it.

Every year in the results carries a deflator. It is the number that turns that year's pounds back into today's money: multiply a future amount by the deflator. At 2.5% a year the deflator after 20 years is about 0.61, so £1,000 in 20 years' time is worth about £610 in today's money. The "today's prices" and "each year's prices" views use the same calculation and differ only in how the numbers are expressed.

How do individual figures change over time?

• Salary grows at the rate set for that person, 2.5% a year unless changed. This is a rate in future pounds, before inflation is taken out.
• Growth rates on savings, investments, pensions and property are annual rates in future pounds, before inflation is taken out and before charges where a charge is set.
• Spending, and any income marked as rising with inflation, increase by the inflation assumption.
• The State Pension grows with the inflation assumption unless you enter a different rate. The model does not forecast the triple lock or any future decision about it.
• Income tax, National Insurance and inheritance tax thresholds are fixed in law until 5 April 2031. After that they rise with the inflation assumption, or stay frozen if you choose that setting. Nobody knows what later governments will do, so this is an assumption.

How does the planner cover a shortfall?

Each year the model compares what comes in after tax with what goes out: spending, housing costs, debt repayments and any one-off costs you have added.

• A surplus is saved in the order set in the plan, within allowances such as the ISA limit and the pension limits. The starting order is a default setting, not a view on where money ought to go.
• A gap is met from savings in the withdrawal order. The starting order is cash, general investment accounts, ISAs, then pensions, and pensions are only drawn from the access age. You can change the order. The planner does not compare orders or judge them.

A withdrawal from a pension or a general investment account can itself create a tax bill, so covering £1 of spending means withdrawing more than £1. The model works out the larger gross amount so that what is left after income tax and capital gains tax covers the gap. Withdrawals from cash and ISAs need no gross-up.

If every source runs out, the unmet amount is reported as a shortfall for that year. The results show the first year in which spending cannot be met and each person's age then. This is a statement of arithmetic. The planner does not say whether a result is acceptable.

Two optional settings change the flow of money. "Bed and ISA" moves money from general investment accounts and cash into unused ISA allowance each year, and is off unless you turn it on. For couples, "balance taxable income" is described in couples and inheritance tax.

What this looks like in the planner

The Cash flow view shows where the money for each year comes from, after tax, against a dashed line for outgoings. The picture at the top of this page is Sam, an invented example who stops work at 62 and spends £36,000 a year: take-home pay, then savings, then pension withdrawals and the State Pension meet the spending until the money runs out in 2051/52, at 83. The same plan at £30,000 a year looks like this.

The Compare view puts scenarios side by side. Here the only difference between the two is the spending.

Milestone lines mark the years where things change. In Alex's example they show the mortgage paid off, work stopping, the State Pension starting and the money running out.

Open Sam's example in the planner or Alex's example, and change any figure to see the results move. Both are invented, and their growth rates are assumptions: real returns vary, and the value of investments can go down as well as up.

Where are the tax rules, pension rules and limits explained?

• UK tax rates and allowances 2026/27 covers income tax, National Insurance, savings, dividends, property income, capital gains tax and student loans, with the current figures.
• Pension drawdown, tax-free cash and the State Pension covers contributions, allowances, tax-free cash, drawing an income and the State Pension.
• Couples and inheritance tax covers two people's tax, a first death and the inheritance tax estimate.
• How long will my pension pot last? and retiring at 55 vs 67 work through invented examples of a pension pot at two levels of spending, and of stopping work at two ages.
• What the planner simplifies or leaves out lists the simplifications that matter most.