Increasing income does not resolve long term shortfalls in the cash flow

Q - My client currently has long term shortfalls in the cash flow following her retirement. I've tried increasing the client's employment income, just to see how the software works, and while this does increase her near term cash inflows, it has no impact on the project shortfalls following retirement. Am I missing something about what happens to this surplus income? 


A - The answer to this question depends on three factors:

a) The type of inflow;

b) Planned expenses, purchases, and contributions to savings and investments;

c) How you have the software set to treat surplus income, which is configured in Preferences. 

Note: For a comprehensive article on this topic, see: Surplus Income - Is surplus income spent or is it saved?


In this case we are dealing with surplus habitual income, which is usually assumed spent if not saved, depending on how you set the software to operate. 

Habitual income includes:

- Employment income,

- Other income (entered on the Other Income Screen),

- Scheduled withdrawals (on-going or one-off) from investments or savings,

- Drawdown pension income,

- Yield (dividend and interest) from unwrapped investments that is taken as income, not reinvested into the fund,

- Annuity payments,

- Final salary payments,

- State pension benefits,

- Regular payments from long term care or income protection policies. 


Voyant is set initially to assume that any leftover surplus from these habitual income sources will be spent on miscellaneous unplanned discretionary expenses unless you schedule contributions to savings, investments, and/or money purchases to capture the surplus. This assumption is popularly known as Parkinson’s Corollary or Parkinson’s Second Law, which suggests that one’s expenditures inevitably rise to meet one’s income.

Although your clients may provide very detailed and seemingly realistic accounts of what they think they spend, there may be all manner of future discretionary expenses they cannot foresee. Assuming future surpluses will be saved may not be a realistic assumption for many clients as doing so may leave them with a large, improbable store of ready cash.


We generally think it safer to assume that surplus is not saved, which encourages you to have an active discussion with your clients about how they might best plan to save or invest these funds. You can then set up a savings and investment plan in their client case, perhaps as a what-if scenario, and demonstrate the advantages of future savings.

Future surplus habitual income that is not scheduled to be spent or saved but that is assumed spent is called unallocated income. You can view how much unallocated surplus is being assumed spent each year on the legend of the Let’s See Cash Flow chart. 



Related Topics - Two Proactive Options for Saving Surplus Income

Aside from resetting the software's assumptions for surplus cash, possible ways to plan to save default cash would be to: 

Schedule Contributions - Capture future surplus income through planned savings, investments

Invest future surplus income into a pension (money purchase)


Preferences - How to set the software to assume all surplus habitual income is saved

Voyant is normally set to assume unallocated surplus spent. You have the option, however, to switch off this setting and assume the opposite. Leftover surplus can be assumed saved, if you think this approach is appropriate for your clients and their lifestyle.

This setting is found on the Preferences screen under Plan Preferences, to the right side of the screen. Expand the Calculation Settings panel. Tick the Transfer Excess Income / Credits to Savings is ticked. When this preference is ticked, all unspent, unsaved surplus will be assumed saved.



If you prefer this to be the software’s default assumption going forward, as you create new client cases, make the same change in the adjacent Calculation Settings panel to the left side of the screen, under System Preferences.


For Further Reading

Surplus Income - Is surplus income spent or is it saved?