An important step in putting together your comprehensive retirement plan is calculating your net worth with a personal balance sheet.
To see where you’re going, and whether you’re on track to get there, you need to know where you are right now. You need to find out your net worth so you can determine if you’re financially fit.
To “weigh” your wealth, you’ll need a complete list of your assets and liabilities — everything you own and everything you owe. So, grab your laptop and that fat folder full of paperwork and let’s get to work.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Start with your assets
On the assets side, you’ll need to know:
- How much cash you have (checking, savings and money market accounts; Treasury bills and/or money under the mattress).
- What your investments are worth (CDs and annuities; any and all retirement and brokerage accounts; income properties or land).
- The value of your home (if you were to sell it today).
- The value of your car(s).
- The value of any other large assets (a boat, vacation home or motor home).
- Any other personal property of value (heirlooms you could sell if you needed the money, jewelry, artwork, a coin or stamp collection, etc.).
- Any life insurance policies with cash value.
- Other assets you might have.
Then think about your liabilities
On the liabilities side, you’ll want to list:
- Your remaining home mortgage and vacation home mortgage (if applicable).
- Any other outstanding loans (car loans, boat loans, student loans — yours or your children’s — home equity loans or lines of credit, any personal loans).
- Your credit card balances.
- Any other bills you’re paying over time (a tax bill, for example).
- Other liabilities.
Your personal net worth is the difference between what you own and what you owe.
Don’t feel discouraged if that number isn’t where you want it to be. That’s the point of this exercise — to motivate you to set goals and start working toward them.
And this information is critical to helping your financial professional build a plan that can get you in shape for retirement.
When your adviser talks about “growing your wealth,” what he really wants is to help you increase your net worth. After all, it won’t do you much good to accumulate a lot of money in savings and investments if, at the same time, you’re piling up debt.
Knowledge is power
Are you living to spend or spending to live? Your adviser can point out your trouble spots and provide some strategies for improving them.
If you’re house poor, you can pay more toward the principal, refinance or even downsize. If you have credit card debt, you can look at your bills and try to curb your appetite for expensive clothes or vacations. If you haven’t made investing a priority and you’re 50 or older, you can make some catch-up contributions.
Seeing the numbers on your balance sheet — good or bad — can put you in a position of power. You’ll know exactly where you stand and what you’ll need to do to enjoy a successful retirement.
-
Social Security Is Taxable, But There Are WorkaroundsIf you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to TakeA serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
Social Security Is Taxable, But There Are Workarounds
If you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to Take
A serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
-
The Home Stretch: Seven Essential Steps for Pre-RetireesThe decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
-
Three Options for Retirees With Concentrated Stock PositionsIf a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
-
Four Reasons It May Be Time to Shop for New InsuranceYou may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
