RT Journal Article
SR Electronic
T1 Using an Economic Balance Sheet for Financial Planning
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 15
OP 23
DO 10.3905/jwm.2013.16.2.015
VO 16
IS 2
A1 Andrew Rudd
A1 Laurence B. Siegel
YR 2014
UL https://pm-research.com/content/16/2/15.abstract
AB An economic balance sheet of the household is a snapshot of the household’s overall economic position and incorporates information needed for meaningful financial planning to take place. The economic balance sheet includes not only conventional accounting assets such as investments, but also the present value of expected pension and Social Security benefits and, most importantly, human capital (the present value of expected future earnings). After explicit debts and taxes have been accounted for, the liability side consists mostly of expected future consumption and should be segmented into necessary, target, and aspirational amounts. This balance sheet evolves over time, and a diligent planner will keep the information up to date. Safe assets can then be matched to the necessary part of the liability, while riskier assets can be used to try to achieve target and aspirational goals.TOPICS: Wealth management, retirement