A Simple Annual Financial Review Template

The start of a new year is a good time to recap the previous year and plan for the current and future years. My wife and I just did the annual financial review for our household. I’m sharing the template we use and where we get the data.

Net Worth

The total net worth represents all financial resources available at a point in time. We break it down into two categories: liquid investments (“paper assets”) and real estate. The value for real estate is net of any mortgage balances. We include home equity in total net worth because it is an available financial resource. We love our home, but when necessary, we can sell and buy a less expensive home or use the proceeds to fund assisted living. We use the historical purchase cost as the value for real estate. You can also use the property tax assessment value or a reasonable estimate.

We further break down liquid investments between taxable investments and retirement accounts. You can add a third category to break out Traditional versus Roth accounts if you’d like.

We get these values from Fidelity’s Full View, which aggregates both Fidelity and non-Fidelity accounts. I updated my post Fidelity Full View + Analysis: Track Your Portfolio Across All Accounts with Fidelity’s latest user interface, also known as the New Full View. The New Full View doesn’t have all the features of the Old Full View, but it still works for our purpose.

We round to the two most significant digits in these numbers. $1.3 million or $250k is good enough. It’s not necessary to go more granular.

Investment Allocation

Next, we look at the investment portfolio’s asset allocation at the highest level: stocks versus fixed income, and U.S. stocks versus international stocks. This tells us how it changed from the previous year and whether we need to rebalance.

We get these numbers from Fidelity’s Analysis feature, which I described in the second half of Fidelity Full View + Analysis: Track Your Portfolio Across All Accounts. Analysis examines the investment holdings from all accounts in Full View. You can use other tools or a spreadsheet.

Income

This is our tax return boiled down to its simplest form. What are the major sources of income? How much do we pay in taxes? How much is it as a percentage of our total income?

We get the income numbers from Microsoft Money, which was discontinued many years ago but still runs in Windows 11. Any other income and expense tracking software works as well. Taxes for the prior year are from the actual federal and state tax returns. Taxes for the year that just ended are estimated.

Again, use no more than two most significant digits, as in $25k, not $24,736.

Expenses

Now we come to the expenses side. We include property taxes but not income taxes as expenses. Income taxes are largely a function of income. The quickest way to lower taxes is to lower income. Income and taxes are already covered in the previous section.

We keep income and expenses in only three or four major categories. Fewer categories present a clearer view without distraction from too many details. The expenses data also come from Microsoft Money. Again, many other income and expense tracking software work too.

Baseline Retirement Projections

We run a baseline projection in Fidelity’s retirement calculator. I updated my post, Fidelity Retirement Planning Tool: High-Level Model, Not Tactical, with Fidelity’s latest user interface. The retirement calculator uses accounts in Full View assigned to the retirement goal.

The baseline assumptions include our best guesses for income, expenses, and major events. The retirement calculator projects a trajectory of the investment portfolio when market returns are significantly below average or merely below average. I look at the projected values in today’s dollars at major age milestones. Comparing with projections from last year tells us whether we’re off track.

Projections by definition are educated guesses. Anything beyond the single most significant digit in the numbers is meaningless.

Pessimistic Retirement Projections

We run the projections again in my wife’s account with a more pessimistic set of assumptions: lower income, higher expenses, and unexpected events. We do it in two accounts because Fidelity’s retirement calculator doesn’t allow saving two scenarios in one account.

The pessimistic assumptions serve as a stress test for the future outlook. What if our best guesses are off significantly? We want our plan to survive these adverse conditions. Running these projections revealed the two fundamental drivers of financial success in retirement.

Summary

Finally, we summarize the previous sections. This recaps the previous year and guides the current year.

We intentionally keep the annual financial review short and simple because we believe it’s most useful to have a big picture. We use Fidelity’s tools and Microsoft Money as data sources, but you can also populate the review with data from other sources.

If you find this format helpful, you can download the template from Google Drive. It’s set as view-only. Please use File -> Download to download it in PowerPoint or ODP format and modify it as desired.