Course: Fundamentals of Personal Financial Planning
Lesson: Calculating Retirement Need
Topic: Goal-Based vs. Cash Flow      Page 1 of 3  
   

Goal-based vs. Cash Flow Approach

In treating retirement as a goal, you try to determine the amount necessary for a successful retirement, and then figure out what needs to be done achieve that monetary goal. To treat retirement as part of the continuum of life, you create a model for your life, and determine the probability of whether there will be enough funds to last through an extended life.

 

This second method is called a cash flow analysis method.  The cash flow analysis method provides a probabilistic answer to only one set of circumstances.  Thus, in examining retirement planning via this method, you will know a great deal about just one scenario.  In the goal-based approach, on the other hand, you get approximate answers which can answer a range of questions.