Cash-flow-based software not always better

By Harold Evensky

I respectfully disagree with the statement in the article "How to Choose the Right Software for Retirement Planning," JofA, Feb. 2018, that "Cash-flow-based software ... may be better at handling complex plans." While cash-flow-based software is the appropriate technology to be used in those cases where a client is facing cash flow and tax issues within a five-year period, it is entirely inappropriate for long-term (10- to 30-year horizon) retirement planning for a number of reasons. The most obvious are:

  • Cash flow software prioritizes a client's goals chronologically. Clients' goals are not chronological.
  • While cash flow software does indeed create "much more detailed" plans, it does not create more "precise" plans. Projecting the detailed assumptions (e.g., tax calculations) necessary for a cash flow analysis 10—30 years in the future is at best ludicrous and at worst dangerous.

Harold Evensky
Lubbock, Texas

Editor's reply: Thank you for your comment regarding our recent article. You make excellent points about some of the important elements that should be understood by advisers when using cash flow software for long-term projections. Regardless of software selection, detailed assumptions are being made in both types of systems. Only recurring updates to the plan over time will provide the best road map for the client. Our intention with the article is to help those practicing become comfortable at a high level with either application's overall planning approach and method of calculation. Every adviser will likely have a different "ideal" program.

Thank you again for your involvement.

SPONSORED REPORT

Get your clients ready for tax season

These year-end tax planning strategies address recent tax law changes enacted to help taxpayers deal with the pandemic, such as tax credits for sick leave and family leave and new rules for retirement plan distributions, as well as techniques for putting your clients in the best possible tax position.

RESOURCES

Keeping you informed and prepared amid the coronavirus crisis

We’re gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption.