ARCHIVE - Need Analyser, Lump Sum - About the lump sum need analysis **AdviserGo, UK and Ireland**

The Lump Sum need analyser determines the additional  lump sum cash inflow that would be needed at any given point along the timeline (the 'lump sum timing event') in order to prevent any future shortfalls from occurring thereafter in the plan.


What Does the Software Assume is Done with the Lump Sum Inflow? 

When run, the lump sum inflow is used to pay expenses and any remainder is deposited into a Need Analysis Account and drawn upon in subsequent years of the plan, following the goal event, as a source for expense payments.  

This Need Analysis Account is viewed in the chart details by clicking on a bar of the Insight - Detailed Info - Investments tab. The lump sum deposit to this account will be grown using the growth rate on Investment accounts from  Plan Preferences. To see what the growth assumption is and to possibly reconfigure it, check the growth and fees settings. This default can be found on the Preferences screen in Plan Preferences (right) > Default  Inflation / Growth Rates  > Investment Growth Rate % .


Using the  Lump Sum Need Analyser and Determining Protection Needs

If you create and what-if plan and use the drag and drop replacement Mortality event, found on the Time screen, to model an early mortality, you could then use the Lump Sum Need Analyser to project a value for lump sum protection that would need invested in order to eliminate shortfall in the plan and run liquid assets to zero. 


Another Common Cause of Simulation Errors - Restricting Expense Payment Sources

A common cause of solution errors are expense payment sources. For expenses you have the option to specify whether a preferred source, usually a particular savings or investment account, should be drawn upon to pay a given expense before other possible payment sources such as incomes are taken into account. For example, if your clients are saving into a special fund to pay for their children's future university fees, you would likely set this account as the preferred payment source for these fees on the Expense screen > Advanced Settings > Expense Payment Source panel. There is no harm in doing this if needed. The software will draw first from the specified account when attempting to pay the expense and if the account does not have adequate funds it will draw from other sources.

There is an additional option on the  Expense Payment Source panel to "Only allow preferred source to pay expense". This setting can create problems for the need analysers. By ticking this option you will prevent the software from fulfilling the expense from any source other than the preferred payment source. Use this option only very sparingly and we recommend only using it in what-if plans. It could be useful, for example, in testing a case to discover whether your clients are saving enough into that education fund to fully fund their children's future uni fees. Incomes and other liquid assets are taken out of the mix when paying these future expenses and if the account is being underfunded, shortfalls will be shown in the cash flow chart, usually above the black need line to note that then shortfall is an artificial one. Other income and assets are available but the software is not being allowed to draw upon them.

If you use the  "Only allow preferred source to pay expense" option and the account in question goes underfunded, the software will never be allowed to draw from other sources to pay the given expense. When running a needs analysis, this will result in a "solution error" because the software cannot find a solution to the shortfall.