Grand Central Publishing


Your Fiscal Physical

Exclusive Excerpt from AGEPROOF by Jean Chatzky and Michael Roizen, MD

A bank balance isn’t the only financial figure you need to keep your eye on. These tests will help you survey your complete monetary landscape.

In so many aspects of your life, you get checkups. You have your annual physical, weigh-ins, and blood tests. At work your bosses like to classify you as excellent, satisfactory, or “shape up or ship out.” Your car? You have mileage benchmarks for oil changes and service calls. Heck, you’ve put yourself through diagnostics your whole life — from report cards to SATs to GPAs. Data points tell you where you fall on various scales of success. You use these tools not only to make judgments, but also to make adjustments — to tell you when things are going well and to tell you how to make things better.

But when it comes to money, so many people shy away from diagnostic tools the way we shy away from a second “serving” of cod liver oil.

After all, there’s no real formal or ingrained system for really assessing your financial picture. Nobody is sending home a report card if you don’t earn as much as you’d like. There’s no scale to step on to tell you that — oops — you overdid it when you spent next month’s savings allocation on last month’s vacation. Often people judge their financial stability in subjective ways that don’t have much context — how big their car is compared to the neighbors’, what floor their office is on (or whether it’s in the corner), and how big their ring/house/TV/boat is. And while those things may be indicators of your financial performance and your security, that’s certainly not the scientific way to give yourself a fiscal physical. In fact, it can often be misleading; just because your ring is the size of a volleyball doesn’t mean that you have enough money saved for retirement.

So what does that all mean? It means you should treat your financial picture the way you treat your heart health and the treads on your tires. If you don’t take stock of where you are, you never know when you’re going to fall apart. And what you’re trying to avoid is a financial flat tire that leaves you stranded and desperate, without a spare to let you limp along to the next paycheck. Not only that, but you also want more than just “avoiding disaster.” You want wealth and comfort — to earn and increase your money so that you do more than just get by, but also enjoy things, experiences, and family because you have the means to do, explore, dream, and live.

The real question is: Are you analyzing and understanding all your data correctly in a way that doesn’t just stress absolute numbers but also reveals information about trends and what you need to do to reverse bad ones and maximize good ones?

While we won’t take your blood pressure in this chapter, it may spike a bit as you assess your overall financial picture. Just keep going. As uncomfortable as it may be, you need to see and be aware of where you are, so you can learn about the (often simple) steps you can take to deal with any shortcomings.

Your health, your finances, and, yes, even your mental well-being can be measured in numbers — helping you be younger, happier, and financially stable.

Best of all, for these assessments, you don’t need an expert or high-tech equipment to get results. You just need to log on to your accounts or pull out your latest statements to see exactly where you stand.

TEST 1: Income Level

Your Gross Income: ____________(Not just your salary, but all income your family earns in a year; include interest at banks, dividends, income from rental properties, second jobs and side gigs, and Social Security — essentially any money you bring in annually.)

Your Take-Home Income: ____________ (Your net income, or gross minus federal income tax, Social Security and Medicare taxes, state and local income taxes, health insurance premiums, and contributions to 401(k)s or other work-based retirement plans, health savings accounts (HSAs), flexible-spending accounts, and anything else deducted from your take-home pay. In other words, your discretionary income.)

How Often to Assess: Annually

You know how the first thing doctors do for a checkup is take your weight? (Of course you do.) Well, this is one of the first things to look at when assessing your financial picture. The reason: all other monetary values flow from this number. It’s one-half of the major money equation: what comes in versus what goes out. And oftentimes it’s one of the hardest things to control, because you’re essentially at the mercy of a salary (and a growth rate) that’s controlled by someone else.

*DR. MIKE SAYS: And for those of you contemplating (or in) retirement, there’s an interest rate manipulated by Federal Reserve members who seem to want to abuse those who save and motivate people to live for the day.

While we all want higher incomes because we think that’s the route to more beach vacations and bigger kitchen islands, the fact is that the absolute salary doesn’t always matter. Oftentimes when income goes up, so does spending. That means the net gain in the household is nada. So what are you after? Well, research from Daniel Kahneman, winner of a Nobel Prize in Economics, suggests that the benchmark for income should be about $75,000 a year. That number, according to his 2010 study, is the dividing line between those people who are happy and people who are not. While that may be a good starting point, you also know that $75,000 in San Francisco looks a heck of a lot different from $75,000 in Small Town, Middle America, or even in Cleveland. Therefore, it’s impossible to really give you the pot‑of‑gold magic number you should be hitting when it comes to salary, and to your ability to save for retirement and emergencies. Instead,

the way you value income has to be in proportion to your expenses.

That means you have to make another calculation: How much are you spending? This exercise, if you’re not already doing it, will require some time. You need to manage and track your monthly expenses — folding in categories that may not always be paid monthly (say your property tax or life insurance bill). And then factor in that 15 percent of your income should be earmarked for savings (if you’re making a 401(k) or other retirement plan deduction off the top, you can lower the 15 percent by that percentage plus the percentage of any matching dollars you receive). After expenses, if you have some left over in your income, then you’re ahead of the game. So this is how your equation should look:

TEST 2: Your Expenses

Your Household Expenses: ____________ (Everything you spend money on each month. This includes both the predictable — rent, gas, food, clothing, insurance — and the unpredictable — the dog goes to the vet, your brilliant child is invited to travel to the other end of the country to perform.)

Your Total Payments Involving Loans: ____________ (Payments you’re making on mortgages, car loans, student loans, credit-card bills, and personal loans.)

How Often to Assess: Annually

This is a simple — yet perhaps more depressing — equation: add up all the things you have to pay for every month. This total is what makes up your monthly budget, but also is the second piece of the financial puzzle that will determine your financial health. It includes regular expenses, as well as payments for anything you’re borrowing money for. Debt, as you know, particularly high-interest-rate debt, is like the junk food of your financial picture. A little may harm you, may age you, but won’t kill you; the more you have, the worse it gets. And for some people that junk-food addiction gets worse and worse, as you accumulate more and more debt and your expenses exceed your income. If you haven’t already, you need to create a budget that allows you to see the inflow and outflow of money — taking into consideration all the payments you need to make regularly. While it may not be simple to actually reduce your expenses (we’ll show you how throughout the book), it is fairly simple to create a diagnostic tool for determining whether your expenses are too far out of whack with your income. The three rules to follow:

— Your total expenditures (including those dollars you put into your savings accounts) should not exceed your take-home income.

— Your housing expenses (including mortgage payments, taxes and insurance) should not exceed 28 percent of your gross income (this is a measure lenders use to figure out if you qualify for a mortgage).

— Your total debt payments (including those for housing, plus your credit cards, student loans, car payments, etc.) should not exceed 36 percent of your gross income.

(As you approach retirement, your total debt — not including the revolving credit-card bills you pay off in full every month and a car loan or lease if you have one — should be approaching zero.)

Test 3: Your Net Worth

Your Net Worth: ____________ (Your net worth is the value of all your assets minus your liabilities. Calculating it means adding up the balances in your retirement, brokerage, savings, and checking accounts, then tacking on the value of the equity in your home (the price it would sell for minus the balance on your mortgage) and the value of the equity in your car (again, what it’s worth minus what you owe on it). You can include other assets in your net-worth calculation — art, jewelry, etc. — if you wish, but only if you’d be willing to sell them to fund your future.)

How Often to Assess: Annually

Taking a look at your net worth — that is, what you own versus what you owe — can give you a good look into how financially healthy you are. This is different from just your yearly salary, because basically it takes the pulse of your entire financial picture. What’s important here is trend lines. Is your net worth going up or down from year to year? Sometimes your net worth can drop even if your salary goes up, because you take on more debt in the form of mortgages and loans. And sometimes your net worth may go up even if your salary doesn’t, because you’re paying down debt. There are some online tools that will make these calculations easier. They work just like medical apps or electronic medical records (EMRs) that track your performance on the same health tests over a number of years. Track your net worth now and make it one of those things you test every year. Here’s what to calculate:

assets minus debts equals net worth.

Once you’ve calculated your net worth, you should be asking yourself one question: What does it all mean? What if you’re worth a hundred bucks or a hundred thousand or a million? Well, unlike some of the arenas of health, where a blood-pressure number is a blood-pressure number and you’re either healthy or three bites of cheese away from a heart attack, net worth is a little more fluid. That is, your net worth can be very different from your neighbor’s, even if the two of you have the exact same number. That’s because net worth is all about context for retirement in comparison to income. Certainly we all want as high a number as possible, but more important, we want to keep it trending up, up, up. As long as you see yourself heading in that direction, steadily, you’re on the right track.

Test 4: Emergency Savings

Your Pot: ________________

How Often to Assess: Once a Month

Life happens. Roofs leak. Cars break down. Medical mysteries happen. People lose jobs. Repairing any breakdowns can take a lot of money — money that is not included in your monthly budget. And finding a new job doesn’t happen overnight. Oftentimes, when these emergencies arise, you rely on credit cards to pull through, which then turns into a dangerous game of dominoes as you come under financial strain attempting to climb out of debt (especially with cards that have huge interest rates). To avoid this burden — and keep your monthly budget in good shape and your net worth growing — you can and should earmark some of your budget for an emergency savings account.

This isn’t where you save your money to grow. This is the old money-under-the-mattress trick, except you’re not actually using a mattress. You’re keeping a pot of easily accessible money to handle life’s emergencies and put out financial fires. The danger, as you know (or have experienced), is that when money is easily accessible, it’s, well, easily accessible — and that makes it awfully tempting to pull out that cash and use it to pay for a purebred Tibetan mastiff. But an emergency savings account counts only if you forget it’s there — and tap it only if an unforeseen crisis would crush you financially. So here are the guidelines for your emergency account:

— This money needs to be liquid, meaning it should be in a savings or money market account that you can access immediately (not in a CD, where there may be a penalty for pulling it out, or in the market, where you could potentially lose principal). This account should be separate from the account you use usually for everyday expenses.

— Focus on creating a small pot first. Save $2,000 before turning your energy to building the bigger pot. About half of all Americans would find it hard to come up with this sum in a pinch, so having a fund this size at your disposal is a substantial achievement. This baseline can get you out of immediate jams, even if it can’t do much if you lose a job.

— Once you’re at the baseline, work on increasing the account until it could handle between three and six months’ worth of expenses (six months for single folks, three months for two-income couples — if one loses a job, the other income can help fill the gaps). Retirees should have enough in an emergency account to cover one year of expenses and enough sheltered from the whims of the stock market to cover three years. Just don’t let building this bigger cushion get in the way of saving for retirement and capturing matching dollars. Split the difference if need be, putting 3 percent toward this fund and 12 percent toward the long term, until your cushion is created.

Test 5: Retirement Options

In Your Retirement Accounts: ________________ (total amount)

Social Security Pot: ________________

How Often to Assess: Annually

What does retirement look like to you? A beach? A hammock? Golf or tennis? Travel? Hanging with your spouse or the grandkids? (Men, it seems, are looking forward to hanging with their significant other, according to some new research. For women it’s all about the little ones.) Any or all of those? Sounds lovely. If you’re lucky, retirement will include whatever you want, even if that means working at a job you love or inventing a side career for yourself or pursuing a passion. No matter what retirement looks like to you, two truths apply to virtually everyone: your health costs are going to go up (even if you do follow all our advice, the body will betray you from time to time), and your income from working is going to go down (and, eventually, just stop).

All that’s a different way of saying that one of your priorities has to be pocketing enough money to take care of yourself in retirement. While some expenses will certainly go down (the days of buying prom dresses and basketball shoes may be over), other expenses (greens fees and entertaining friends, for example) will not. And you want that retirement stash to be able to handle your living expenses, your medical expenses, your unforeseen expenses, and your spoil-the-grandbabies expenses — without ever having to worry about outliving your savings.

Now, there is some debate as to the optimal number in terms of how much you actually need to retire. So many factors play a role — how much you earn, how long you plan to work, how much you plan on spending, and how long you live. You can use an online calculator to calculate your optimal number (find ours at But if you just want a ballpark number, use this chart to guide you:

What if you’re not there yet? Don’t panic. That’s precisely what these benchmarks are for. Remember how on page 26 we said that you should be saving 15 percent of your income, including matching dollars from your employer? If you’re not hitting these marks, that’s a signal to you to adjust that 15 percent higher — try to ratchet your savings rate up by 2 percent a year, and/or plan on working a little longer and taking Social Security a little later. (We’ll talk more about that in chapter 10; for now you can see what you stand to receive by going to and checking your current statement.)

Just note: These numbers were developed specifically with people who earn $50,000 to $300,000 a year in mind. The way they work, your savings (the multiple of your annual income in the above chart) are designed to replace 45 percent of your preretirement income while Social Security covers the rest. The amount Social Security will cover slides based on your income. See the chart below:

This analysis raises some important questions. Here are the


Do you have to worry that, if you’re earning $100,000 a year, the 27 percent of your nut that you’ll replace with Social Security plus the 45 percent you save adds up to only 72 percent? No, because you’re not consuming the full $100,000 that you’re earning. You’re paying taxes, living, and — most important — saving at least 15 percent a year. You’re already living on less. For those reasons you don’t have to replace the full amount.

What if you are one of the people with pension income that will replace a certain percentage of your retirement income, in addition to your 401(k) or other retirement nest egg? Lucky you! You can reduce the amount you have to save to replace the first 45 percent you need for your future retirement paycheck. For example, if you can see that your pension is going to replace 15 percent of what you believe will be your final income, you are responsible for replacing only the other 30 percent. Figuring out how much that is means doing a little math:

30% (or the amount you want to replace)/45% (or the full recommended replacement rate) = x (the new multiple of your final income you want to save by retirement)/10

In other words: 30/45 = x/10. Do the math and x = 6.67. You need to save 6.67 times your final income by retirement.

What about health care? These recommendations are based on actual consumption patterns of people in retirement, so health care is included. Although you can expect health expenses to start to rise as you age, other expenses taper off simultaneously. By age 80, health-care expenses have essentially replaced transportation expenses.

What if you earn more than $300,000 a year? In general, the more you earn, the less of those earnings you consume. We’re in no way suggesting that someone who makes $5 million a year needs to save $50 million to retire comfortably. But one way to gauge how much you’ll need is to pay attention to how much of your income you’re actually consuming in the years before retirement. In many cases college expenses and, perhaps, the mortgage will be satisfied by then, so you can eliminate those from your list of outflows.

Test 6: Your Credit Score

Your Credit Score: ________________

How Often to Assess: Every Six Months

A vital piece of financial data, your credit score usually determines what interest rate you’ll pay on mortgages and other loans. It even factors into the price of your homeowner’s and auto insurance premiums. So the better your score (and there’s a proven way to raise it if you’re not satisfied with where yours is right now — we’ll talk about it in chapter 11), the more money it can save you in the long run. Monitor your credit score as regularly as you change your oil (unless you’ve got one of those cars that needs oil changes only every 15,000 miles; in that case check it twice as often), so you know where you stand with people who will be making financial decisions that affect you (and check your credit report regularly to make sure you haven’t become a victim of identity theft). You can request a free copy of your credit report each year from each of the three major credit-reporting agencies at Your credit score is based on the information in these reports, so look for errors you can correct or bad habits you can turn around*. You can also review your credit score free each month at,, or

*DR. MIKE SAYS: And I bet your bad health numbers go down as your credit score goes up — financial stress has that much of an impact on your health.

Most credit scores operate within the range of 301 to 850. How the scores stack up:

Excellent credit: 750 and up

Good credit: 700–749

Fair credit: 650–699

Poor credit: 600–649

Bad credit: Below 600

Test 7: The Mirror Test

How Often to Assess: Annually

All the above tests have one thing in common: they’re all about the numbers. Tangible data, hard-line metrics, percentages, additions, subtractions, goals that you can tangibly see and achieve. But we don’t want you to think that financial security is solely about digits. In fact, we’d be remiss if we didn’t explain that much of what drives our financial decision-making isn’t numbers, but emotions. Therefore it’s not only smart, but advised, to make one of your financial assessments about something that doesn’t include a single dollar sign. You’ll think about you — your life, your goals, the changes you’ve experienced over the past year. Why? Because the changes in your life can change your decisions — and those can change budgets, outlooks, expenses, and all the things that influence the numbers in the rest of this chapter.

So with this assessment, your goal is simply to answer the following questions — not just to give yourself a tangible piece of data to work with, but also to help yourself think about how these things may affect your approach to money and wealth. Ask yourself:

— How has your life changed? (In terms of marital status, a new job, relocation, or any other big life events.)

— Have your financial goals changed? (Do you want to donate more to charity [before or after death — consider a “charitable annuity” that allows you to receive interest payments on donations till you and your spouse die], spend more time with family, travel more, start a business?)

— Have your views on risk changed? (Has the market or your life status made you more or less averse to risk, more or less aggressive with your portfolio and investments?)

While you don’t need to do anything specific with those answers, you should spend some time letting them percolate and thinking about how these changes may influence your money issues.

Three Advanced Checkups

If you’re in good shape with most of the above tests, you’re probably ready to take a look at a few other key areas (all of which we’ll discuss in detail later in the book, but all of which are worth mentioning here as you do annual diagnostics). We’ll be covering all of these in more detail throughout the book, but you can use the total numbers for taking stock of where you are.

Other savings accounts: How much do you have earmarked for college education, health care (via a health savings account), or other specific uses? Are those numbers heading up as rapidly as you’d like?

Asset allocation: This will determine the percentage of your portfolio that goes into, say, stocks or bonds. If you have investment portfolios (including your retirement and other brokerage-based accounts but not your bank-based emergency ones), assess how your assets are divided every year. One rule of thumb: the percentage of your portfolio in stocks should be around 110 minus your age.

Insurance: Every year you should look at what you’re spending on various forms of insurance and make sure that your coverage is sufficient for your needs and that you’re not spending more than necessary. This may entail shopping around.

For more, check out Ageproof by Jean Chatzky and Michael F. Roizen, MD. Published by Grand Central Publishing. Copyright © 2017 Jean Chatzky and Michael F. Roizen.

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