1. Take inventory of assets & liabilities

The first step of any journey is to understand your starting position.  In the case of retirement planning, this means documenting all the resources you currently have that will be used to fund your retirement.  This also means capturing the obligations you have that will continue into your retirement.

Let’s start with investment assets.  There are three categories of assets: 1) Tax deferred, 2) Tax exempt and 3) Taxable.

Tax deferred assets are those that you don’t pay taxes on when you earn them and they grow without paying taxes on the growth.  However, you will pay taxes once you begin to make withdrawals.

In the U.S. these include:

IRA Accounts, 401k Accounts and Deferred Annuities

Asset Current Value Est. Value at Retirement Monthly Income at Retirement Taxable in Retirement? Inflation Adjusted?
Example: Work 401k 50,000 75,000 Yes No
Example: IRA 20,000 35,000 Yes No
Example: Deferred Annuity 25,000 50,000 200 Yes Optional

 

Tax exempt assets include Roth IRAs, Roth 401ks and Municipal Bonds (may be subject to state income taxes, however).  You pay taxes when you earn the money but you don’t pay taxes when you make withdrawals.

Asset Current Value Est. Value at Retirement Monthly Income at Retirement Taxable in Retirement? Inflation Adjusted?
Example: Work Roth 401k 50,000 75,000 No No
Example: Roth IRA 20,000 35,000 No No
Example: Muni Bonds 25,000 50,000 No No

 

Taxable assets include savings accounts, stocks, investment real estate and precious metals (like silver, gold, etc.)

Asset Current Value Est. Value at Retirement Monthly Income at Retirement Taxable in Retirement? Inflation Adjusted?
Example: Savings 50,000 75,000 ?? (Interest) Yes No
Example: Real Estate 120,000 150,000 1,000 (Rent) Yes No
Example: Stocks 25,000 50,000 ?? (Dividends) Yes No

 

Next, let’s write down any sources of income you will have from companies you’ve worked at or from the government.

These include pensions (you are very lucky if you have one of these) and Social Security (or your country’s equivalent).

Income Source Current Value Est. Value at Retirement Monthly Income at Retirement Taxable in Retirement? Inflation Adjusted?
Example: Pension 1,000 Yes No
Example: Social Security 1,000 Depends Yes

 

Now let’s take inventory of your liabilities.  Will you go into retirement with a mortgage, car loans and/or credit card debt.

Liabilities Current Debt Est. Debt Balance at Retirement Monthly Payments at Retirement Months Remaining at Retirement Tax Deductible?
Example: Home Mortgage -150,000 -100,000 2,000 60 Interest
Example: Car Loan -30,000 -10,000 450 24 No

 

Finally, let’s take inventory of your obligations at retirement. This includes number of people you will be taking care of and any alimony payments.

Obligation Count Ages When You Retire Monthly Financial Obligation Taxable in Retirement? Inflation Adjusted?
Example: Immediate Family 2 65, 87 1,500 Yes No
Example: Alimony 1 62 2,000 No No

 

You may have other assets, income sources, liabilities and obligations so don’t consider this a comprehensive list.  The purpose here is to take inventory of your financial situation in order to assess what options you may have to live that happy life in retirement.

Next article will be about taking inventory of yourself and your spouse (non-financial factors) to answer questions like what ages have important milestones?  And what is your life expectancy?

That’s all for now.  Keep an eye out for future posts at www.nearingretirement.com.

To your retirement success,

Steve
NearingRetirement.com

P.S. Please leave a comment below letting me know what you think.

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