Financial Planning: Take Control of Your Finances

What is a financial assessment

A financial assessment is a set of questions to help you determine whether you’re financially on track to reach your future monetary goals. Taking a financial assessment will help you understand your current situation and where you want to be in the future.

Whether you want to attend luncheons with friends, play golf, travel to exotic places, or spend time with grandchildren (maybe all of the above!) in your retirement, you must determine your long-term financial goals. A financial assessment can help you get on track with your retirement goals and ensure you have enough money to live comfortably. The financial assessment can be done with a financial planner or an online questionnaire.

A good financial goals assessment will most likely ask questions regarding:

• Your current sources of income, bills, and expenses.
• Basic financial health, including your current retirement and emergency savings, credit scores, loans, residual income, current liquid assets, and debts.
• Tax returns, past income, self employment documents (if applicable), bank account statements, and other assets.
• Ongoing costs and other financial obligations, such as caring for children or elderly parents.
• Short and long-term goals, such as saving for college education, buying a car, downsizing a family house, or saving for a desired retirement community, care home, or other residential care.
• Your current credit card payments, credit score, credit history, interest rates, debts, and credit situation.
• Other housing related expenses, like property tax payments and mortgages.

An in-depth or more personal financial assessment will have these considerations taken into account:

• Retirement options available to you through your employer.
• The types of accounts you currently have, rates, and current savings situation.
• Your approach to money, and areas you want to work on.
• Your ideal balance between saving and lifestyle spending and how you will want to budget on a limited income in retirement.
• What your Social Security payments will look like.

A financial assessment helps you get organized so you can proactively plan your future. Take our financial assessment below to help you get your retirement planning on track.

List Your Financial Goals

Creating a chart of your financial goals, making a financial assessment, and assigning a timeline to reach them will influence your investment strategy. Follow these steps to set your financial goals on your own or with an expert financial planner.

Financial Goals Assessment

1. Which personal objectives are the most important to you when it comes to your envisioned retirement?

List your main retirement goals below, assign a timeframe and calculate the cost of each goal.

Goal #1 – Timeframe

• Short-term: 0 to 3 years
• Medium-term: 3 to 10 years
• Long-term: 10+ years

Calculate the cost of each goal

• Use today’s costs for short-term goals
• Use a retirement calculator for medium- and long-term goals

Goal #2 – Timeframe

• Short-term: 0 to 3 years
• Medium-term: 3 to 10 years
• Long-term: 10+ years

Calculate the cost of each goal

• Use today’s costs for short-term goals
• Use a retirement calculator for medium- and long-term goals

Goal #3 – Timeframe

• Short-term: 0 to 3 years
• Medium-term: 3 to 10 years
• Long-term: 10+ years

Calculate the cost of each goal

• Use today’s costs for short-term goals
• Use a retirement calculator for medium- and long-term goals

2. Today, what percentage of the family income do you feel should be set aside to save? Why?

3. What do you think is a reasonable interest rate when investing?

4. At what age do you wish to retire?

5. What plans do you have for retirement?

6. Is saving for retirement important to you?

7. Are you familiar with your government retirement benefits? Do you know what you will receive in Social Security benefits?

8. If you could no longer work due to a disability, would you have sufficient reserves to keep you going? For how long?

9. What is your approximate life expectancy? What about the life expectancy of your partner?

These financial assessment questions will give you a baseline for your retirement goal setting.

Retirement and Financial Goals to Consider

When you're near retirement age, your financial assessment may look a little different. Here are some common goals for people who are 50+:

Maintain or improve lifestyle

You work hard your entire life, so you want to enjoy life as you get older and approach retirement. To do this, you’ll need to maintain or grow your investment portfolio as well as increase income to offset inflation.

Prevent running out of money

This is a top goal for many. Having to continue to work past normal retirement age, rely on children for help or go back to work is a main source of anxiety for people age fifty and above. Smart investments, which often require more than low-volatility investments, such as Treasury bonds, can help provide you with enough cash flow during your retirement years.

Increase wealth

The main goal for this group of individuals is to grow their assets and wealth over the long term, often for their retirement enjoyment, and/or legacy (whether that’s for their children, grandchildren, or a charity). If you fit into this category, taking a growth-oriented approach to investments is common.

Other times you may come across a financial assessment

With reverse mortgages, every borrower must have a financial assessment done to verify that they can afford to pay property taxes and homeowners insurance over the life of the loan, according to federal regulations.

Lenders look at the borrower's sources of income, such as Social Security and pensions. Borrowers must submit certain papers, including tax returns and bank account statements. A credit score issue will have to be explained. The lender must assess whether the explanation qualifies as an "extenuating circumstance" in getting the loan accepted.

Lenders examine financial assessments to see whether they must set aside a certain amount of money to pay for property taxes and other expenditures over the life of the loan, including residual income and the borrower's income. The "set aside" reduces the amount of loan money available to the borrower.

Retirement Goal Setting: What’s Next in Financial Planning?

Once you've put together an accurate financial assessment, you’ll need to estimate your retirement spending behavior and then figure out your net worth. Get a financial planning overview to get more in-depth information on spending and calculating your net worth to get big-picture insight into your retirement wants and needs.