What is the Household Balance Sheet or HHBS?

You start with the basic financial balance sheet format of assets on the left and liabilities (and owner's equity) on right. Then you customize it for personal retirement planning use by specifying personal assets like your savings, investments, home value, pensions, etc. on the left, and personal liabilities like your future living expenses, medical costs, education funding, bequests, etc. on the right. If your personal assets total more than your personal liabilities, then you have positive owner's equity, which is your extra financial cushions against life's unexpected expenses. Koch Capital further enhances the Household Balance Sheet by bringing it online and making it collaborative courtesy of Google Apps, and integrating it with other financial applications and data feeds.

What is the Funded Ratio?

It's the ratio of balance sheet assets divided by balance sheet liabilities. If that value is greater than 1 (or 100% if using percentages), then you have sufficient assets to cover your liabilities, provided all your input data and assumptions are correct. From a retirement planning perspective, Koch Capital uses the Funded Ratio to see if clients have enough personal assets to cover their planned expenses in retirement.

It's been over two weeks and I haven't received any email from Google inviting me to access the HHBS Demo Template. What gives?

If you haven't received any email response two weeks after completing the online request form, then it's probably either (1) a bad email address was submitted or (2) Google substituted your Gmail address even if you entered a non-Gmail address initially. For (1) please resubmit another request and for (2) please check your Gmail inbox, or consider registering your non-Gmail email address here.

Is there an "Undo" spreadsheet command on the Funded Ratio Demo template to reverse data entry mistakes?

Absolutely, use the Google Sheet back arrow (upper left side of browser) to undo the previous entry. You can also revert the entire template back to its initial state by using the File menu item, then selecting the "See revision history" option and clicking on the earliest date. This will essentially reset the template, and all previously entered data will be lost.

I'm interested in retiring before age 65, does the template support early retirement for me and/or my spouse?

Yes, the current version of HHBS supports any combination of target retirement ages for both you and your spouse if applicable. But does mean you are completely on your own when determining your medical expenses since I don't currently have a good free resource to assist in calculating future medical costs before age 65.

If you are still using an early version of the template, then please go to Step #5 in the HHBS tab. Right mouse click on the Retirement Age field highlighted in yellow, and select the "Data validation..." menu item. Next, either select the "Show warning" option to disable the original "Reject input" setting, or simple use the "Remove validation" button to get rid of the entire data validation policy.

Are the medical expense estimates you used in the Funded Ratio Demo template present or future values?

Those projected expense values are in future dollars, since the entire lifetime of medical expense dollars is discounted back into single present value equivalent.

Why does the Funded Ratio Demo use fair market value (FMV) for portfolio (investment) assets, and not a projected value given these assets grow (most years) and generate dividends?

Future portfolio growth "potential" is captured in discount (hurdle) rate selected and applied against the counterpart liability. For example, if you plan to use part or all of your Current Financial Assets (investments) to fund your Lifestyle (discretionary) Living Expenses directly, then use a high hurdle rate (4%, 5%, 6%, etc.) if you are confident you can deliver at least that rate of return from your portfolio(s) and other non-liquid assets for the entire period that the counterpart liability exists. Likewise, if you plan to use part of your Current Financial Assets (investments) to fund your Essential Living Expenses directly, then use a more conservative (lower) discount rate that matches the expected return of the conservative portion of your financial assets. It's a tough and important balancing act which is why in most client retirement situations, Koch Capital favors matching risky financial assets against discretionary expenses using higher discount rates and matching safer income assets against essential expenses using lower discount rates.  

To keep the Funded Ratio Demo manageable, I've restricted the discount rate to a single "composite" value, but in the full HHBS implementation you would specify different discount rates for the different expense types (liabilities), and for any future value asset types too. Please refer to this blog post for more details.

Does the funded ratio calculation work for already retired people?

Yes, in fact we recommend tracking your funded ratio value all through retirement. Life happens. And life events will cause your funded ratio to go up and down over time. From a true balance sheet perspective, you'll have varying amounts of assets and liabilities over your lifetime. So when your assets are greater than you liabilities, that excess (also known as owner's equity) is your cushion against life's unexpected events.

As for the Funded Ratio Demo exercise, it really is just a one-time funding assessment at this point in time and educational tool to help folks think about how they will fund their future retirement.

Are the Social Security Administration (SSA) future benefit projections in current dollars?

Yes, and given they're projections assuming past earning levels continuing forward, the final realized benefits can be substantially different from the earlier projections. Hence, the closer in age you are to actually collecting benefits, the more reliable the SSA projections.

The Funded Ratio Demo template is not accounting for any adjustment to benefit projections. Therefore, if you are already taking Social Security or near the age of starting benefit collection, then this is not an issue. However, it's more problematic the younger you are. I don't have a good solution or free resource right now given the current model framework, but will address the benefit projection accuracy issue in the next release.