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January 15, 2022

Important Numbers To Update Every January

Every January there are a few important numbers you will want to update in your Retirement Budget Calculator. Here are my top 3 suggestions:


Inflation Adjusted Expenses

One of the many things that makes the Retirement Budget Calculator unique and powerful is that you can assign a separate inflation factor to each individual expense. This is important because not all expenses are equal when it comes to inflation. Last year my health insurance expenses increased 16%, but the amount I budgeted for a haircut did not change. Let's take a look at a more detailed example: you created your budget and planned to spend $1,000 per month for groceries, but you also predicted that this expense would increase at 3% per year. You then manually entered this percentage into the “Annual Inflation %” column as you were working on your budget. Now at the beginning of the second year you notice that your grocery budget has automatically increased to $1,030. This method can be used with a variety of scenarios. What about after a year like 2021, which had 7% inflation? Maybe you feel like a better amount to budget for your groceries would be $1,100 per month. Or perhaps you found ways to keep your budget the same as the year before and you feel that $1,000 is still adequate. In any of these cases it is important to remember that the Retirement Budget Calculator will automatically adjust each year based on the inflation percentage you originally entered. However, if you want to keep an expense exactly the same as the prior year, the easy way to make the adjustment is simply by changing the starting “Year” column to the current year. This will be a great way for you to try and understand how your expenses will change over time and is also very helpful when looking at the “Future View” tab to more accurately understand if you will run out of money in retirement.


Net Worth

It is a good practice to track your net worth continually. Before using the Retirement Budget Calculator I would update my net worth only once per year. This is a simple exercise to see if you are making progress toward your financial goals or to see if you are losing ground. After learning about the “Snapshot” report on the upper-right corner of the “Assets & Liabilities” tab, and after being encouraged by the RBC Nerds private community, I am now enjoying the practice of updating my net worth on a monthly basis. It is interesting for me to see how the numbers change and to recognize that my emotions around what I think is happening with my values are not always consistent with what is actually happening. At a minimum I recommend you update your assets and liabilities once per year, if not more often, which will help you have an accurate accounting of your net worth.


Year End Required Minimum Distributions

The Retirement Budget Calculator can help you calculate your Required Minimum Distribution (RMD). If you have inherited an IRA, or if you are over the age of 72, and are required to take a RMD you will want to go to the “Assets & Liabilities” tab, and then click on “Liquid Investable Assets”. You should then update the very last column called "Balance (End of Year Prior)” for each row. The RMD calculations are based in-part on the value of your accounts on December 31st of the prior year. By updating the values in this column the calculator will have the necessary information to provide a more accurate estimate of your actual RMD for the current year.

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