Cash Flow

To calculate annual cash inflows, NaviPlan:

1. Calculates the returns earned by each of your clients' assets. NaviPlan makes this calculation based on how you define the assumptions for each asset.
   Factors that may affect this calculation include:
   • the assets' assigned asset class weightings and return rates.
   • the return rates entered for each specific asset.
   • the valuation date for each account or holding.
2. Adds-up all itemized income from other sources (entered on the Cash Flow page) such as salaries.
3. Calculates income from annuitized annuities entered on the Annuities page (Enter Financial Data category - Net Worth section).
4. Adds-up equity compensation in the form of stock options and/or restricted stock that has proceeds directed to cash flow as entered on the Equity Compensation page (Enter Financial Data section - Net Worth category).
   Note: This calculation only applies to Level 2 plans using the Detailed Tax Method.
5. Adds-up special income such as the tax-free proceeds of any new loans, redemptions from assets used to fund goals, income from trusts, as well as the proceeds from insurance policies.
   Note: Special incomes are not entered on any one page—instead—NaviPlan makes this calculation based on information entered into several locations throughout the application.

To calculate annual cash outflows, NaviPlan:

1. Calculates the income tax due on asset returns, based on the income tax method selected.
   1. When the Detailed Tax Method is selected, NaviPlan applies bracketed federal taxes that consider an extensive number of deductions and credits.
   2. When the Average Tax Method is selected, NaviPlan uses average, short-term capital gains, long-term capital gains, or marginal tax rates (entered under Tax Rates on the Plan Management Section - Assumptions category - General page).
2. Deducts amounts such as qualified contributions or tax-deductible interest from the clients' taxable income from other sources. Then—depending on the income tax method selected—applies the appropriate tax rate to calculate income tax liability generated by sources other than taxable portfolios.
   Note: Deductible amounts are calculated by NaviPlan based on information you enter throughout the plan, you need not enter them specifically.
3. Adds all of the clients' expenses for the year, including the following:
   1. Expenses entered on the Cash Flow page.
   2. Expenses associated with goals.
   3. Loan payments (calculated by NaviPlan).
   4. Investment expenses entered on the General page (Plan Management section - Assumptions category).
   5. Savings Strategies
   6. Insurance premiums
      Note: Expenses associated with goals are funded by specific, dedicated assets. All other expenses are paid from cash flow. If a non-qualified asset is more than sufficient to fund a goal to which it is dedicated, the surplus is automatically allocated to retirement.
4. Adds the clients' other scheduled cash outflows (from the Strategies page, Enter Financial Data section - Strategies category), and reinvestment of income from assets.
   

1. Allocates any cash surplus according to the clients' surplus savings strategies. Each strategy is fully-funded before any cash surplus is allocated to the next one entered. If these strategies do not use all the surplus cash the remainder is assumed to be spent and not carried forward to the next year.
2. Keeps track of any pre-retirement cash flow deficits.
3. During Retirement, redeems assets at the end of the year to cover the retirement goal. By default, funds are used in the following order:
   1. Any reinvestment of income from non-qualified assets that would be made at year end.
   2. Non-qualified assets in the following order:
      1. Ratio of adjusted cost basis to market value as of the end of the year, from highest to lowest.
      2. Return Rate, from lowest to highest.
      3. Market value from smallest to largest.
      4. Asset category in the order of cash accounts, mutual funds, and investment portfolios.
      5. Alphabetically, based on the Description field.
   3. Non-qualified annuities that are not paying out.
   4. Roth and Roth annuities that are not paying out.
   5. Qualified accounts and annuities that are not paying out in the following order:
      1. Ratio of qualified basis to market value as of the end of the year, from highest to lowest.
      2. Total return rate, from lowest to highest
      3. Alphabetically, based on the Description field.
   6. Stock options and restricted stock (if using the Detailed Tax Method).
      Note: You can revise the liquidation order of assets used for the retirement goal in a Level 2 plan by click the Liquidation Strategies button on the Retirement page. (Set Goals section - Retirement category).
      

• Benefit Formula: This method calculates Social Security benefits based on the annual income. NaviPlan will automatically calculate the value for you based on current Social Security ratios and current earnings.
• Estimate Benefit: This method uses benefit amounts directly entered from a Social Security Statement. All income is manually generated based on what is entered when the client starts earning Social Security.

• Surplus expenses are hidden expenses (such as unexpected car repairs, dry cleaning, and dining out) and can reduce the clients' surplus cash.
• These expenses never cause cash flow deficits because they only occur in years when clients have surplus cash.
• If expenses are currently understated in the plan, you can enter surplus expenses in the Surplus Expenses container on either the Cash Flow(Enter Financial Data section - Cash Flow category) page or on the Surplus (Enter Financial Data section - Strategies category) page.

1. From the Cash Flow page, click for Add Income and select an income type from the list.
2. If applicable, select the family member receiving the income, and then enter the annual income amount.
3. To enter additional details, click and enter any relevant information.
4. If you are entering a salary, bonus, or self-employed income type that is linked to a defined benefit pension or is excluded from either group disability insurance, Social Security or Medicare tax calculations, or savings strategies, click the Other Options link (if necessary), and then make the appropriate selections.

1. From the Cash Flow page, click Social Security Details.
2. Go to the Client or Co-Client tab.
3. Select a benefit method to use for Social Security calculations:
   1. Benefit Formula - Benefits are calculated automatically by NaviPlan based on the clients' incomes.
   2. Estimate Benefit - Benefit amounts (taken from the clients' Social Security statements) are entered into NaviPlan.
   3. Currently Receiving Benefits - If the client is age 62 on or before the plan date or is disabled, select this option to enter the amount the client is currently receiving.
4. If the client is eligible to receive spousal Social Security benefits, select the Eligible for Spousal Benefits option.
5. If you want to switch to the Estimate Benefit method, select the Estimate Benefit option and enter the clients' benefit amounts and the starting age for retirement benefits. If applicable, NaviPlan automatically calculates the values under Survivor with eligible children based on the values entered.
6. Repeat steps 3-5 for the other client.
7. When you are satisfied with these options, click OK.

In NaviPlan, you can either calculate the clients' future Social Security benefits based on the Social Security formula, or enter their benefit amounts directly from their Social Security statements.

• To calculate their future benefits follow the steps under the Calculating Social Security benefits using the Benefit Formula method. heading
• To enter estimated benefit amounts for clients not yet receiving benefits, follow the steps under the Entering Social Security benefit amounts using the Estimate Benefit method heading.
• To enter benefit amounts for clients currently receiving Social Security benefits, follow the steps under the Entering current Social Security benefits heading.
  
  Note: If the client is currently receiving Social Security benefits based on a deceased spouse, do not enter the benefit here. Instead, enter it as an income by clicking the for Add Income on the Cash Flow page and selecting Social Security from the list.

Calculating Social Security benefits using the Benefit Formula method

1. From the Cash Flow page, click Social Security Details.
2. Go to the Client or Co-Client tab and select Benefit Formula.
3. To calculate Monthly RetirementBenefits, do one of the following:
   • Enter the client's percentage eligibility for monthly Retirement benefits select % of monthly benefit, and enter the percentage.
     
     OR
     
     To specify the monthly Retirement benefits that the client will receive select Est. Benefit (today's $), and enter a dollar amount.
   • Select a start date using either the Event menu or the Age and Date fields.
   • Specify a return rate using the Infl and +/- Add'l options.
   • Select Eligible for Spousal Benefits if the client is eligible to receive spousal Social Security benefits.
4. To calculate survivor benefits, enter a percentage of monthly benefits under Monthly Survivor Benefits. Then, define the applicable inflation rate.
5. To calculate Monthly Disability Benefits, do the following:
   • Select the <client> or <co-client> check box to begin calculating survivor benefits.
   • If you are unsure of the amount the client/co-client will receive, select % of monthly benefit and enter the percentage eligibility.
     
     OR
     
     Specify the monthly retirement benefits that the client will receive by selecting Est. Benefit (today's $) and entering a dollar amount.
   • Select a start date using either the Event menu or the Age and Date fields.
   • Specify a return rate using the Infl and +/- Add'l options.
   • NaviPlan will now estimate your client's/co-client's monthly benefits.
6. If the client has any dependents, go to the Eligibile Dependents tab.
   • Select the relevant Dependent of <client/co-client> options to link each dependent to the client/co-client.
7. Go to the Earnings History tab.
   
   Note: This tab displays NaviPlan's projected earnings from which the client's/co-client's Social Security earnings are calculated. The client's/co-client's past earnings appear under Earnings to Date and future earnings appear under Future Earnings.
   1. To change any of these calculated values, select Modify the Calculated Values and enter the earnings you want to use.
      
      Or
      
      You can use the options in the Fill Values container to define a starting value indexed at a given rate over a period of years. To do this, enter data for all fields in this section and click Fill.
      
      Note: You can use Clear Column Values to remove all data from the Amount column.
8. When you are satisfied with these options, click OK.

Entering Social Security benefit amounts using the Estimate Benefit method

1. From the Cash Flow page, click Social Security Details.
2. Go to the Client or Co-Client tab and select Estimate Benefit.
3. Go to the Details tab and enter the applicable benefit amounts.
4. Select Eligible for Spousal Benefits if the client/co-client is eligible to receive spousal Social Security benefits.
5. Enter the starting date for retirement benefits.
6. If the client/co-client has any dependent children, go to the Eligible Dependents tab.
   • Select the relevant Dependent of <client/co-client> options to link each dependent to the client/co-client.
7. When you are satisfied with these options, click OK.

Entering current Social Security benefits

1. From the Cash Flow page, click Social Security Details.
2. Go to the Client or Co-Client tab and select Currently Receiving Benefits.
3. Go to the Details tab and enter the benefit start date, amount, and adjust for inflation.
4. Go to the Eligible Dependents tab.
   • Select the relevant Dependent of <client/co-client> options to link each dependent to the client/co-client.
5. When you are satisfied with these options, click OK.

In NaviPlan, you can estimate pension income using either the Estimate Benefit or the Benefit Formula method.
See the What are the Estimate Benefit and Benefit Formula methods? section earlier on this page for more information on these methods.

Entering an estimated benefit pension

1. From the Cash Flow page, click the for Add Pension and select Add Estimate Benefit....
2. Enter a unique name for the pension in the Description field.
3. Select the pension's owner from the Member menu.
4. Enter either the Benefits Start Age or the Benefits Start Date.
5. Enter the percentage of pension benefits to be paid to the surviving spouse when the pension owner dies.
   Note: NaviPlan does not calculate any discounts if this election is chosen.
6. If the pension is based on an income, select the options for the appropriate income(s) under Linked Incomes.
7. Enter either a percentage of the owner's final salary in the % of Final Salary field.
   OR
   Enter the estimated pension amount (in today's dollars) in the Est. Benefit Amount field.
8. Click Benefit Payout Options.
9. From the Method of Payout menu, select Life Income or Lump Sum.
   • If you select Lump Sum, you must also select a Transfer Payout to destination.
     • To transfer to an existing IRA, select an existing IRA from the list.
     • To transfer to a new IRA, select New IRA. The default name for the new IRA is Transfer From <description of pension>.
     • To transfer to the clients' cash flow, select Cash Flow.
10. Enter the remaining details for the pension.
11. Go to the Future Benefits tab.
12. Review the displayed items. To override any of the data you see here, select Modify the Calculated Values and enter the benefit information you want to use.
    OR
    You can use the options in the Fill Values container to define a starting value indexed at a given rate over a period of years. To do this, make a selection from the Column to Fill menu, enter the criteria by which NaviPlan should calculate the amounts, and click Fill.
13. When you are satisfied with these options, click OK.

Entering a benefit formula pension

1. From the Cash Flow page, click the for Add Pension and select Add Benefit Formula....
2. Select the pension's owner from the Member menu.
3. Enter either the Benefits Start Age or the Benefits Start Date.
4. Enter the percentage of pension benefits to be paid to the surviving spouse when the pension owner dies. The Benefit Reduction for Survivor Coverage field becomes accessible, enter the percentage in this field.
5. If the pension is based on an income, select the options for the appropriate income(s) under Linked Incomes.
6. Enter information from the available pension documents.
   Note: If a pension is linked to a salary and the payout method is set to Life Income, the benefits that will be paid in the first year appear under Estimated Annual Benefit when Benefits Begin.
7. Click Benefit Payout Options.
8. From the Method of Payout menu, select Life Income or Lump Sum.
   • If you select Lump Sum, you must also select a Transfer Payout to destination.
     • To transfer to an existing IRA, select an existing IRA from the list.
     • To transfer to a new IRA, select New IRA. The default name for the new IRA is Transfer From <description of pension>.
     • To transfer to the clients' cash flow, select Cash Flow.
9. Use the fields under Early Retirement to calculate how early retirement can affect the pension benefit.
10. Go to the Future Benefits tab.
11. Review the displayed items. To override any of the data you see here, select Modify the Calculated Values and enter the benefit information you want to use.
    OR
    You can use the options in the Fill Values container to define a starting value indexed at a given rate over a period of years. To do this, make a selection from the Column to Fill menu, enter the criteria by which NaviPlan should calculate the amounts, and click Fill.
12. When you are satisfied with these options, click OK.

• Use the following steps to model your clients' business and lifestyle expenses.
•   Do not use these steps to enter:
  • loan or mortgage payments.
  • insurance premiums.
  • property taxes.
  • savings contributions.
  • estate planning gifts.
  • transfers from trusts.
  • Expenses that apply only to retirement.
    Note: These should be entered on the Retirement page (Set Goals section - Retirement category).

Entering Expenses

1. From the Cash Flow page, select the for Add Expense and select an expense type from the menu.
2. Enter a Description and Amount for the newly-created expense.
3. To add additional details for the expense, click .
4. Enter expense details.
5. If you are entering an expense owned by the client or co-client and you expect the expense to continue for the survivor after the owner dies, select the Transfer to Survivor option.
6. If you are entering a Fixed Expense, select the Fixed Expense option. If this option is cleared, NaviPlan will treat the expense as discretionary.
   Note: Fixed Expenses are expenses that cannot be readily changed or eliminated by the clients (e.g. utility bills or rent payments). Fixed Expenses are used in the calculation of emergency fund goals and in determining scenario goal coverage.
7. If the End Date for the expense is later than the date of retirement for either client, the expense will also appear on the Retirement page (Set Goals section - Retirement category).
8. If you would like NaviPlan to automatically redeem from assets to cover any cash flow deficits caused by this expense during pre-retirement, select the Cover any pre-retirement deficits cause by this expense option.
9. When you are satisfied with these options, click OK.

• While the clients' plan may project a surplus, these projected surpluses often do not materialize because the clients underestimated their regular expenses or incurred unexpected expenses (e.g. car repairs).
  • If you believe that the plan's projected surplus is unrealistic, NaviPlan allows you to clear some or all of the surplus by creating a surplus expense strategy.
  • Even if you believe that a surplus exists, the projected surplus may be too large. You can use a surplus expense strategy to reduce the size of a projected surplus.

Entering a surplus expense strategy

1. From the Cash Flow page, click Add Surplus Expense.
2. Enter a Description, a % of Surplus to reduce, as well as a Start Year and End Year for the surplus expense.
   Note: Surplus expense strategies also appear on the Surplus page (Enter Financial Data section - Strategies category).
3. To modify the Owner of the surplus expense, click .
4. When you are satisfied with these options, click OK.

• Use this button to generate the Cash Flow standalone report. This report provides a summary of all incomes and expenses entered into the plan.