Slides for a presentation delivered in July 2022 to an audience of older adults

1. Give Yourself a Financial
Check-Up:
25 Ways to Measure Your
Financial Health
(Older Adult Version)
Dr. Barbara O’Neill, CFP®, AFC®
Owner/CEO, Money Talk

2. Disclaimers

3. Class Objectives
• Provide assessment tools to determine
financial strengths and weaknesses
• Provide worksheets to make calculations
• Provide suggestions to improve “financial
fitness” and “screen” for potential problems
(like physical exams)
Repurposed a previous class to focus on older adult finances

4. Detailed Background
Information
http://www.cefe.illinois.
edu/JCE/archives/2013
_2014_vol_30/2013-
2014_vol_30_pg13-
29_ONeill.pdf

5. Question
What check-up tools or techniques
do you use to assess your financial
wellness?

6. Financial Self-Assessment
Tools and Methods
• Financial Statement Check-Ups
• Financial Planning Check-Ups
• Investment Check-Ups
• Later Life Planning Check-Ups
• Personal Characteristics Check-Ups
• Assessment and Comparison Tools

7. Financial
Statement
Check-Ups

8. 1. Incremental Changes in
Net Worth
• Assets: everything that you own
– Liquid (cash assets)
– Tangible (property)
– Investment
• Debts: everything that you owe
– Short-term (a.k.a., current debt; < 1 year)
– Long-term
• Assets minus debts equals net worth

9. 2. The “Wealth Test”
Source: The Millionaire Next Door (Stanley & Danko)
• Multiply your age by pre-tax income from all sources
except an inheritance
• Divide by 10
• This is what your net worth should be for your age
and income level
• Example: 65 x $40,000 = $2,600,000 divided by 10
= $260,000 minimum net worth

10. Wealth Test Worksheet
Your net worth (assets minus debts) ________________
Your annual household income from all sources (excluding income from inherited
wealth) _______________
Your age (if two spouses, average your ages) ________________
Multiply your income by your age ________________
Divide line 4 by the number 10 to get expected net worth for someone with your
age and income __________
Divide your net worth (line 1 by line 5) to get your final score. ________________
Interpretation of your Score
2.0 or higher, you rank in the top 25% of wealth builders called PAWs (prodigious accumulators of wealth)
1 to 1.99, you rank in the top half of Americans in your wealth building prowess.
0.51 to 0.99, you’re a below average generator of wealth for your age and income level.
0.50 or lower, you are one of Stanley and Danko’s UAWs (under accumulators of wealth)
Adapted from http://www.bauer.uh.edu/drude/Net.Worth.Worksheet.pdf.

11. 3. Cash Flow Statement
• Relationship of income and expenses
• Track expenses
– Fixed
– Variable
– Periodic/irregular
• Track income (all sources)
• Income Minus Expenses = Cash Flow

12. 4. Irregular Expense Review
• List all expenses that come irregularly throughout
the year
– Examples: car registration, school tuition,
birthdays, holidays, vacations, quarterly property
tax payment, water and sewer bills, insurance
premiums
• Total each expense and divide by 12
• Save that amount monthly in a “holding” savings
account to cover irregular expenses

13. Irregular Expense Worksheet
Identify the months that you pay irregular expenses, what they are, & the cost
(Example: February, property tax: $1,600). Then add up all of your irregular
expenses and divide the total by 12 to determine the monthly savings amount
• Jan ____________________
• Feb.____________________
• Mar ____________________
• Apr _____________________
• May ____________________
• June ___________________
• July ____________________
• Aug ____________________
• Sept ____________________
• Oct _____________________
• Nov _____________________
• Dec _____________________
• Total of Annual Irregular Expenses____________________
• Monthly Savings Amount __________

14. 5. Financial Ratio Analysis
• Liquidity Ratio: Liquid assets divided by monthly
expenses
– Should be 3 (months expenses) or more
– Example: $10,000/$4,000 = 2.5
• Consumer Debt-to-Income Ratio: Monthly
consumer debt payments (not including a mortgage)
divided by take-home pay
– Should be less than 15% to 20% (overextension)
– Example #1: $250/$2,000 = 12.5%
– Example #2: $350/$2,000 = 17.5%

15. 6. Spending Plan/Budget Analysis
• List after-tax sources of income
• List expenses
– Fixed (including revolving savings)
– Variable
– Irregular (periodic)
• Compare budgeted amount with actual amount
• Adjust as necessary

16. Spending Plan
Worksheets
• Excel Spreadsheet:
http://njaes.rutgers.edu/money/#resources
• Downloadable printed worksheet:
http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf

17. Spending Plan Leaks

18. Financial
Planning
Check-Ups

19. 7. Incremental Progress
Toward Financial Goals
• Financial goals should be SMART
– Specific (date, cost)
– Measurable (progress)
– Attainable
– Relevant
– Time-related (deadline)
• Short-, intermediate-, long-term goals (match
investments to goal time frame)

20. Financial Goal-Setting
Worksheet
http://njaes.rutgers.edu/money/pdfs/goalsettingworksheet.pdf
1
Goals
2
Approximate
Amount
Needed
3
Month & Year
Needed
4
Number of
Months to Save
5
Date to
Start Saving
6
Monthly
Amount
to Save (2-4)
Short-Term (under 3 years)
Medium Term (3-10 years)
Long-Term (10 or more years)

21. 8. Credit Card Check-Up
• Are there credit cards you don’t use that can be cancelled
without hurting your credit score?
• Can you find or negotiate a better interest rate?
• Have you checked your credit report?
– www.annualcreditreport.com
• Do you have a summary list of credit card info (e.g.,
account numbers and 800 numbers)?
• What is the status of your rewards?

22. 9. Housing Check-Up
Renters:
• Finding out about future rent increases
• Comparing rental options
• Purchasing/reviewing renter’s insurance policy
Homeowners:
• Cost-benefit analysis of refinancing or different
mortgage
• Review of home maintenance expenses
• Home maintenance/repair set-aside fund (1% of
home value)
• Purchasing/reviewing homeowner’s insurance policy

23. 10. Income Tax Check-Up
• What is your marginal tax bracket?
– See http://njaes.rutgers.edu/money/taxinfo/
• Would you do better in taxable or tax-exempt
investments?
• Is your tax withholding accurate?
– If not, complete a new W-4 form.

24. Taxable Equivalent Yield
Formula
• Use to compare tax-exempt and taxable bonds
11-24
• Taxable equivalent yield = tax-free yield ÷ (100% - marginal
tax bracket %)
Example: Assume you are in the 22% tax bracket and have
an account with a 3.0% tax-free yield
To get the equivalent taxable yield, divide 3.0% by 78% (100%
- 22% or .78). The taxable yield is 3.84%.
In the 37% tax bracket, the taxable yield is 4.76%

25. 11. Life Insurance Check-Up
• Follow these steps to determine life insurance need:
– Estimate annual income needed by survivors
– Calculate # of years income is needed
– Add expenses (e.g., funeral, debts, other)
– Subtract income such as government benefits
• Review periodically as needs change
• Many older adults no longer have life insurance
– Policies got too expensive and/or they can self-insure

26. Sample Life Insurance Worksheet

27. 12. Other Insurance Check-Ups
• Is your home insured for at least 80% of its
replacement cost?
• Do you have replacement cost riders on property?
• Do you have at least $300k of auto liability?
• Do you have a umbrella liability policy?
• Have you considered LTC insurance?
• Have you recently compared health insurance options
(coverage and cost)?

28. Investment
Check-Ups

29. 13. Investment Performance
Check-Up
• Can do for each investment individually or for a total
portfolio
• Write down beginning balance and ending balance
• Add half of annual contributions (deposits)-IF ANY-
to beginning balance and subtract half of annual
contributions from ending balance
• Divide adjusted ending balance by adjusted
beginning balance
• Convert into a percentage

30. Example of Calculating
Investment Performance
• January 1 balance: $15,368
• December 31 balance: $19,627
• Invest $200 /month or $2,400 over a year (deposits)
– $15,368 + $1,200 = $16,568
– $19,627 - $1,200 = $18,427
– $18,427 ÷ 16,568 = 1.11
– Subtract one, multiply by 100 to get a percentage = 11%
• Return if no deposits made: $19,627 ÷ $15,368 = 1.27 (27%)

31. 14. Investment Risk Tolerance
Check-Up
• Check online quizzes like
https://pfp.missouri.edu/research/investment-risk-
tolerance-assessment/
• Ideally risk tolerance should be stable
• Most people are more sensitive to potential
losses than potential gains
• Consider possible losses in dollar figures
(e.g., $3,000)- NOT percentages

32. 15. Investment Asset
Allocation Check-Up
• Review your desired asset allocation (% of portfolio in
stocks, bonds, cash, real estate, etc. )
• Rebalance back to the original weightings
– If percentages shift by a certain amount (e.g., 5%)
– Periodically according to a certain schedule
• Can rebalance by selling assets or directing new
deposits to underweighted asset classes
– Best if done within tax-deferred accounts (no CG taxes)

33. Later Life
Planning
Check-Ups

34. 16. Social Security and/or
Pension Check-Up
• Review all SSA correspondence
– Annual letter with next year’s benefit and Medicare
Part B premium (late November)
– Correspondence about benefit changes (e.g., new
earnings)
• Revise Social Security tax withholding
• Be alert to pension plan changes and revise tax
withholding as needed

35. 17. Retirement Taxation Check-Up
Are you close to the
limits for…
• Taxation of a portion
of Social Security
benefits?
• IRMAA premiums for
Medicare Part B and
D?
• Net Investment
Income Tax (3.8%)
Is tax withholding adequate?

36. 18. Retirement
“Paycheck” Check-Up
• How are you determining withdrawals from retirement
savings accounts?
• RMD requirements?
• 4% Rule?
• Another strategy?
• Are you adjusting withdrawals for inflation?
• Do you a plan for RMD withdrawals?

37. 19. Estate Planning
Check-Up
• Do you have a current will?
• Have you recently reviewed beneficiary designations on
insurance and retirement accounts?
– http://njaes.rutgers.edu/money/pdfs/beneficiary-
designations.pdf (Worksheet)
• Are there any conflicts between your will and the titling of
assets?
• Do you have a living will, power of attorney, trusts (if
needed)?

38. Quick Estate Planning Check-Up
• Do you have a will and/or trust? (Yes/No)
• Do you have a Power of Attorney for Financial Matters? (Yes /No)
• Do you have a Power of Attorney for Healthcare Decisions? (Yes /No)
• Do you have a Living Will? (Yes/No)
• Have your estate planning documents (wills, trusts, powers of attorney)
been prepared or reviewed in the last five years? (Yes /No)
• Are all of the beneficiaries of your estate over 18 years old? (Yes/No)
• Are all of the beneficiaries of your estate without disabilities (i.e., not
receiving any type of government assistance)? (Yes/No)
• Have you done any type of planning for long-term care? (Yes/No)
If you answered “No” to any of these questions, you should get an estate
planning review.

39. Personal
Characteristics
Check-Ups

40. 20. Personal Capital Check-Up
• Financial Capital
– Savings and investment accounts
– Credit card limits, HELOCs, and home equity
• Human Capital
– Degrees, certifications, knowledge
– Skill set (e.g., arts & crafts, computers, career knowledge)
• Social Capital
– Close friends and family members
– Paid services and professionals

41. 21. Lifestyle Check-Up
Changes in Family Status: marriage, children
leaving home, children returning home, divorce,
widowhood, remarriage, retirement, moving, etc.)
• Financial Implications:
• Increased or decreased income
• Increased or decreased taxes
• Increased or decreased expenses
• Changes in estate planning
• Changes in housing

42. 22. Health Finance Check-Up
• Increased or decreased out-of-pocket costs for
health benefit plan(s)
• Annual review of health benefit plan options during
open enrollment period
• Health Savings Account (HSA) review
• Annual cost of unhealthy behaviors
• Community wellness services (e.g., health fairs)

43. Assessment and
Comparison
Tools

44. 23. Online Financial Self-
Assessment Tools
(Personalized Quizzes)
• Financial Fitness
Quiz (20 questions);
available online at
https://njaes.rutgers
.edu/money/assess
ment-tools/financial-
fitness-quiz.pdf

45. Other Online
Assessment Tools
• Identity Theft Risk Assessment Quiz:
http://njaes.rutgers.edu/money/identitytheft/
• Investment Risk Tolerance Quiz:
http://njaes.rutgers.edu/money/riskquiz/
• Personal Resiliency Assessment Quiz:
http://njaes.rutgers.edu/money/resiliency/
• Wise Credit Management Quiz:
http://njaes.rutgers.edu/money/wise-credit/
• Personal Health and Finance Quiz:
http://njaes.rutgers.edu/money/health-finance-quiz/

46. 24. Comparison With Others
• Median U.S. household income in 2020: $67,521 ($55,660-FL)
https://worldpopulationreview.com/state-rankings/median-
household-income-by-state
• Median net worth of all U.S. households in 2020: $121,700
Sources: Federal Reserve
Board and
https://www.nerdwallet.com
/article/finance/average-
net-worth-by-age

47. Are You Rich?
https://www.nytimes.com/interactive/2019/08/01/upshot/are-you-rich.html

48. 25. Top Percent Income & Assets
Income
Household Net Worth
Source:
https://www.investopedia.com/personal-
finance/how-much-income-puts-you-top-1-5-10/
Source: Federal Reserve Survey of
Consumer Finances:
https://www.federalreserve.gov/eco
nres/scfindex.htm

49. Final Thoughts
A financial check-up is as important as a
medical check-up
– Can assess problems (e.g., high debt ratio) and
risks (e.g., lack of disability insurance)
– Can evaluate progress toward goals
– Can help identify “action steps” to take
– Can provide motivation to change financial
practices

50. Thank You for Attending
Try a few of the 25 financial check-up strategies that are of
most interest and relevance to you.

51. Questions? Comments?
Experiences?