For individuals nearing retirement, one of the first things to consider is: How much money will I be able to withdraw from my portfolio on an annual basis? This is a very important issue and ideally should be determined before entering into retirement.
Whether you use spreadsheets, receipts in shoe boxes or a computer program to track your expenses, it is important to know how much you spend to support your lifestyle. Before considering how much equity you will need in your portfolio during retirement, you should track your expenses for a few years to give you a firm idea of your outflows.
There are a number of software solutions available to help, including Quicken, Microsoft Money and Mint.com. While I don’t recommend any particular software, I do think you should find and use one that suits your needs. Here’s why:
- You can easily view expenses broken down by category. Until you actually measure the monthly expenses in an accurate and systematic way, you may only have a vague idea of how much is being spent in each category.
- With financial software, it is much easier to prepare your tax return. This is especially true if you itemize. All of the good personal finance software options have preloaded categories that are set up to capture deductible items. Once entered, you can produce individual category reports.
- With the aid of software, you always have access to a current balance on your credit card and personal checking accounts. This data can also be downloaded into the software, making catching errors or fraud very easy.
- The personal financial software can make it easier to pay bills on time and keep track of your automatic payments. Since it is possible to automate some of your monthly bills to be charged to a credit card or auto-debit from your checking account, the software helps you track all the different payment transactions in one central location.
- It allows for a smoother transition in the event you become incapacitated. Your spouse, partner or other family member will have a much easier time assuming bill paying responsibilities if you are using expense software.
Personal expense tracking software will help give you accurate, reliable information about how much money you are likely to need in retirement. This will help you determine if your monthly expenses can be supported by your current portfolio and if any changes need to be made – either to your expenses or your portfolio. Remember, if you can track it, you can manage it.
The best way to begin retirement planning is to start early. The sooner you know if your annual requirements are out of sync with what a balanced portfolio can produce, the more options you will have to correct the situation.
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Aaron’s passion for finance developed by age 12, and he worked tirelessly to make his goal of becoming a stockbroker a reality before joining Merriman nearly two decades ago. What he appreciates most about working here is the ability to build close-knit and collaborative relationships both with his clients and his coworkers. He feels his primary responsibility is to protect and defend the families he takes care of from anything life might throw in their way, making sure they are able to live fully.
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