Personal Financial Statements and Retirement

  by Tyler Curtis

by Shelley Seagler

Earlier this week, I asked one of my clients, “What monthly expenses will you need to cover after you retire?”  He responded by telling me how much he had accumulated in his retirement account.  So I tried a different approach, “How much will you need to withdraw from your account each month to pay your bills?”  This time, he answered by telling me how much he planned to invest.  Finally, I realized that he wasn’t answering my question, because he didn’t know.  He has always made a respectable salary, lived frugally, and saved diligently – but, he’s never once tracked his expenses.  Sure, he has a general idea of what his expenses are.  But is that good enough?

Imagine that you are the Chief Financial Officer of a company.  One day, the owner of the company knocks on your door and asks to see the company’s financial statements.  You smile and say, “Well, I don’t keep actual records, but I have a really good idea of where we stand.”

Certainly, if you were the CFO of a company you could never get by with such a lackadaisical attitude.  But when it comes to running the business of you – and your family, have you been tempted to take the same sort of nonchalant approach?

Personal financial statements are crucial to creating financial stability.  Not only do they tell where you are today, they help you create a plan for the future.  There are two statements you should be keeping track of each month:

Income Statement – Your Income Statement should list any money you have coming in (income) and any money you have going out (expenses).  The difference between the two is your net income.

Balance Sheet – Your Balance Sheet  is a summary of your assets and liabilities. Your assets are the things you own that have value.  Your liabilities are the amounts you owe to others.  The difference between the two is your net worth.

I’ve included links to Excel worksheets above.  But another great resource is, which is a free and secure online resource for money management.

Personal financial statements are important at any stage in your life, but as you approach retirement, they become increasingly powerful.  Up-to-date and accurate statements give you a framework to estimate how your financial situation will change over time.  By doing this, you can use tools like Snider Advisors’ My Financial Plan  to project different retirement scenarios, which gives you tremendous insight as you make decisions about retirement.  Retirement requires you to make many decisions, including some that are irreversible and have lifetime consequences.   For example, at some point, you will have to choose when to start taking Social Security.  If you can model different scenarios, you can examine how choosing to take Social Security at 62 or 65 or 70 might impact your standard of living.  (To learn more, check out our free Special Report, It’s All in the Timing: Evaluating the Best Time for You to Begin Taking Social Security)

If you can project your monthly expenses into the future, you can more precisely determine how much cash flow your portfolio will need to produce for you to be able to pay your bills, pay your taxes, and keep pace with inflation.  This information is crucial because it enables you to make appropriate decisions about how your retirement funds are invested.

When it comes to retirement planning, perhaps the single most beneficial aspect of personal financial statements is they help you answer the universal questions, “How much should I save?”  and “Do I have enough?”

Tracking your expenses, income, assets, and liabilities on a regular basis may seem tedious and boring.  But after a while, it will just become part of your routine.  More important you cannot underestimate the impact it will have on your current and future financial situation.

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