Organizing your finances is the first step to take in planning for retirement. It will make the transition into retirement easier to manage. It is critically important because in retirement you’ll be responsible for your own paycheck. You have to decide how much of your savings to spend each year, and how much needs to remain untouched so it is available in the future. That takes an organized approach.
List All Retirement Accounts
A retirement account is anything that is — or was — in an employer-provided plan, such as a 401(k), 403(b), deferred comp plan, SEP, SIMPLE, etc., or any personal retirement accounts such as an IRA. If you have an annuity that is titled as an IRA, include it in this list. If married, list your retirement accounts separately from your spouse’s accounts. If you have a Roth IRA or Designated Roth account through your employer, list those balances separately from your other retirement accounts.
Now, see which accounts you can combine. For example, all your IRAs can be transferred into one IRA account along with old 401(k) account balances. You cannot combine your retirement account with a spouse's account, however.
Track What You Own and Owe in a Net Worth Statement
In addition to retirement accounts, you may have other savings and investment accounts, stocks, bonds, or mutual funds that are not owned inside of retirement accounts. List these accounts and decide which one, or what amount, you are going to designate as your emergency or reserves account.
Also list other major assets such as your home, motorhome, gun collection, other collectibles, etc. The idea here is not to list everything you own, but to list things that have value that could be sold or liquidated if you were in a bad financial situation. When you list these items, do not inflate their value — list them at what you think you could sell them for.
If you have debts, list those too. For example, to the right of your home value, you would list any remaining mortgage balance. Then you would have one more column that subtracted the remaining debt from the asset value so you have the items' "net worth." This net worth statement should be updated every year.
Create an Income Timeline
When you retire, not all income sources start at the same time. If you make a smart plan, you will intentionally decide when certain items should start, such as Social Security. For example, suppose you are going to retire at 65, but you will not start Social Security until 70. However, your spouse, who is the same age as you, will start collecting a spousal Social Security benefit on your record when they reach age 66. Now you have different income amounts starting in different years. An income timeline lays all this out for you so you can see what amount of your savings you might need to use to fill in the gaps. You’ll want to include projected required minimum distributions from retirement accounts in this timeline. You’ll use this info to estimate income taxes that will be owed in retirement.
Make a Spending Timeline
A spending timeline is slightly different than a budget. You’ll need a budget, or list of all your expenses, to complete your spending timeline. What you’ll do is take your expense items and project them into the future. This is important because not all expenses occur every year. For example, many retirees forget to budget for the eventual purchase of a new car. Projecting upcoming expenses for each of the next 10 to 20 years can make sure you don’t overlook things. The most common things that are missed on a retirement budget are Medicare Part B premiums and other health care expenses, new car purchases, major home repairs (such roof replacements or new carpeting), dental care, and the need for additional services such as a handyman, yard care, pool care, or home cleaning services.
List All Insurance Policies
Insurance policies need to be reviewed once in a while. Start by listing them all by owner and policy number. Then, once a year, you can refer back to your list to start your review. Categorize your policies by property and casualty (homeowner, auto, etc.), life, health, disability, and long-term care. Then review each category in light of your current goals, and current pricing for that type of policy.