Nurturing the Nest Egg: A Business Approach to Personal Financial Planning

Download my budget planning tool (pdf document)!

By Michael Kraten, Ph.D, CPA,
President, Enterprise Management Corporation, Accounting Professor, Suffolk University

Will you be bankrupt on your 100th birthday?

Considering the state of health of our social security and private pension systems, this is a question that should haunt every American.  What if our life savings are depleted at the very time that we are least able to support ourselves?  Will we become a burden on our children?  On our friends?  On government and society?

As recently as 1990, an American male who survived to age 65 only possessed a life expectancy of 80 years, and thus only required a nest egg that could support him for 15 years. 

But today, because of the increasing prevalence of early retirement (both voluntary and involuntary) and the recent explosion of medical technology, we are witnessing a tremendous lengthening of the retirement period.

So how can we ensure that we will remain financially solvent on our 100th birthdays? Certified Public Accountants may be well advised to utilize their professional budgeting skills by taking a business approach to personal financial planning.

A Budget-Planning Tool

I have created a budget-planning tool and a consumer-targeted article designed for investors in their 20s. Pension Governance, LLC, an independent research and analysis company that focuses on benefit plan related investment risk, has accepted it for publication.  I am also currently developing similar articles for investors in every stage of life.
With the advice and guidance of Michael Christie and Greg Coghlan, financial advisors with Merrill Lynch in Stamford, Connecticut, as well as Paul Hammerschmidt, a Tax Director with BDO Seidman LLP in New York City.  I have designed a set of three spreadsheets and an article that discusses Warren Buffet, Joe Louis, Paul Tsongas, Ted Williams, and others in order to illustrate its themes.

The budget-planning tool has been extensively tested by my graduate and undergraduate accounting students at Suffolk University in Boston.  It is available for public use and has been posted for distribution here (pdf document).

A Business Approach

The article advocates a five-step business approach to personal financial planning.  It notes that strategic plans generally begin with descriptions of corporate missions and business models, continue with projections of sales volumes, operating costs, and sales revenues, and conclude with estimates of Return On Investment (ROI) and Economic Value Added (EVA).  It then describes analogous concepts and techniques that apply to retirement planning activities.

The article also presents a mini-case of a 27-year-old man who has begun his third year of building a nest egg.  The three budget spreadsheets reflect the scenario presented in the mini-case and are designed to encourage CPAs and their clients to download, input, and save their own personal data.

The article concludes with the exhortation to “plan, plan, plan.”  It advises individuals to draft and periodically revise their own spreadsheet tables, and to consider alternative investment strategies and/or new trust and foundation giving options to address funding shortfalls or surpluses.

Comments and Feedback

I welcome your comments, feedback, and suggestions for improving the tool; I am also delighted to answer questions from professional colleagues and the general public about utilizing my work in conjunction with financial literacy development programs.  You can contact me at michael.kraten@enterpriseman.net or 203-383-0900; the website for my consulting firm, Enterprise Management Corporation, is www.enterpriseman.net.

This article is reprinted with the permission of Pension Governance, LLC, an independent research and analysis company that focuses on benefit plan-related investment risk, corporate strategy, valuation, and accounting issues.