RightCapital is a powerful tool, equipping you with the clarity needed to ensure your client’s retirement success. An important consideration is your Planning Method setting, which broadly determines the type of planning that will be done for a given client. This setting impacts the data entry required in the Profile tab, in addition to how values are calculated and displayed in the Retirement Analysis and Cash Flows modules.
Within each and every client plan, you can find the planning method setting by navigating to the Gear Icon > Settings > Methodology page. This setting will be listed first under "Calculation options":
You can switch planning methods freely without losing any data, which can be useful for visualizing the impact that each option will have on a plan. There are three Planning Method options to choose from:
The first two options, 'Cash flow based' and 'Modified cash flow based', are both cash flow based planning methods. Cash flow based planning requires income and expenses to be entered during the initial data entry process, and will project comprehensive year-to-year cash inflows and outflows within the plan. The calculation for this is simple: Cash Inflows minus Cash Outflows equals Net Flows. The main difference between these two options is the way they handle excess cash flows. Please see below for a more detailed description of each option:
When a client's cash inflows outweigh their cash outflows in a given year, the traditional Cash flow based option assumes that all cash flow surplus will be savedand reinvested into a taxable investment account. When using this option, excess cash flows that are being saved and reinvested will appear in the Net Flows column of the Retirement > Cash Flows > Summary table:
Traditional cash flow based planning can be a great option for clients who are good at tracking expenses, as it is easy to show the value of saving every excess dollar of income with properly documented expenses. This method may also be beneficial for clients who are more conservative with their spending, and prefer to watch savings grow over time.
The main thing to keep in mind when using a traditional cash flow based planning method, is that the ability to manually enter taxable savings is removed. Because every penny of excess will be saved and reinvested into the taxable account bucket, the Taxable savings card will not appear in the Savings section of the Profile. This brings us to our next option...
The Modified cash flow based planning method is similar to the traditional, with one major exception: any excess cash flows are assumed to be spent rather than saved, unless otherwise indicated within the plan. When using this option, excess cash flows that are being spent off can be tracked in the Spend Unsaved Cash Flows column of the Retirement > Cash Flows > Summary table:
Modified cash flow-based planning is the default planning method in RightCapital. This option is great for clients who may not be as diligent about tracking their expenses and wish to be a bit more conservative with their plan projections. This method may also be beneficial for clients who are more likely to spend their hard-earned money in years when they have a cash flow surplus.
Modified cash flow based planning also provides you with the most flexibility, allowing you to manually enter Taxable savings cards within the plan. Rather than saving or spending every penny of excess, these cards allow you to enter exactly how much excess you would like to save, and for exactly how long. Excess cash flows that are being saved and reinvested will continue to appear in the Net Flows column of the Cash Flows > Summary table:
Important Note on Modified Cash Flow Based
Please note that when using Modified Cash Flow Based, certain kinds of income will always be saved rather than spent within the projections. This includes:
The Goal based planning method is the most different of the three options. Unlike cash flow planning, goal based planning mostly ignores income and expenses, and instead looks only to goals, savings, and account information to sketch up a rough picture of retirement. Using this method simplifies the data entry process, requiring only:
Goal based planning is less commonly used today than it was in the past, but it can certainly be a useful option for quickly sketching up a rough picture of retirement for a client. For clients with a more stable financial future, it can also be a helpful way to focus on big picture goals without the need to enter detailed income and expense information.
That being said, RightCapital is first and foremost a cash flow based planning tool, and many of the additional planning modules within the software rely on comprehensive cash flow data. For this reason, goal based planning is not recommended if you wish to use other tools besides the Retirement module for a client. Without income and expenses to consider, Retirement > Cash Flows tables will also be limited to Net Worth and Accounts:
Important Note on Goal Based Planning
The only income data card that will impact a goal based plan is Social Security. You will be asked to enter a salary, but this value will only be referenced to calculate savings (for example, a 10% 401k contribution). No expense data cards will impact the plan, with the exception of the Tax and Fees card.
Although RightCapital enables you to adjust the planning method for each client household, it can be valuable to set a system-wide default that aligns with your general preference. To choose the planning method option that will be used as the starting point in all new client plans, navigate to your Advisor Portal and click into Client Settings > Client Presets:
Note on Client Presets:
Changing the client presets will only affect new client plans – all existing clients and client plans will be unaffected by the changes you make here.
