End of 3Q 2017: Goal and Progress Tracking

Wow, so the year is 3/4 of the way complete!  It feels like the year has flown by.  It is time to update the Goal and Progress Tracking to see the progress made.

3Q 2017 Update:

  • The market continues to be strong.  The S&P 500 Index increased by 3.96%
  • July and August finished up being strong months, finishing at 90% of the 4% ratio.  I was able to keep costs in line with the strong market.
  • September ended up lower, as I paid for a much needed mini-vacation!
  • There were several dividend payouts in Sept from mutual funds.

See below for more details!

One of the reasons I created this site was to share my journey and to give myself accountability by sharing results.

When you are on a journey, it is important to know where you are and where you are going.  If you are on a trek, there are tools you can use such as a GPS device or a map (or both!).

For personal finance, it is about setting personal goals and tracking progress.  If you don’t set a goal, then you are just wandering around, directionless.

Here are my goals and the progress made:

  • Primary Goals
    • Goal 1:  Achieve the “4% Rule” for Total Investments vs. Spending
    • Goal 2:  Achieve Dividends amounts greater than or equal to Spending
  • Secondary Goals (Challenge):
    • Goal 3:  Achieve the 4% Rule for After Tax Investments vs. Spending
    • Goal 4:  Achieve After Tax Dividends greater to or equal to Spending

So where do I stand?  Let’s explore:

Goal 1:  Achieve the 4% Rule for Total Investments vs. Spending. 

This goal is my first FI – Financial Independence goal.  If I can reach a  ratio of 1.0, then the theory is I can withdraw 4% of my investments each year without  running out of money.

If the Ratio ≥ 1, then in theory you can live off your investments.

Challenges:

  • Most of my portfolio is in either a 401k or a Roth IRA, where there are penalties or circuitous methods to access your funds.
    • Examples include taking a 10% penalty, 72t distributions, and Roth Conversion Ladders.
  • If the market goes down early after starting to take withdrawals, if spending is not immediately slowed, it can have a significant impact on the long term viability of the portfolio.
  • The 4% Rule is usually considered for an ~30 year retirement.  If I retire early, I would need the portfolio to last longer.
  • Current spending does not include health care, so this would have to be accounted for in the future when I retire early.

Goal 2:  Achieve Dividends amounts greater than or equal to Spending

The 2nd goal is more conservative than the first.  It is to have the dividends gained equal to or greater than spending.  For my portfolio, I do not focus solely on dividends, as I use a total returns approach, but I have recently been increasing allocations in Dividend Growth stocks via Vanguard’s Dividend Appreciation Fund, VDAIX.

If the Ratio ≥ 1, then in theory you can live off your dividends.

Goal 3:  Achieve the 4% Rule for After Tax Investments vs. Spending

The third goal is to be able to achieve the 4% rule with after tax investments.  Achieving this goal would mean I would not have to touch the retirement accounts until they could be withdrawn penalty free at 59.5 years of age.

Goal 4:  Achieve After Tax Dividends greater to or equal to Spending

This goal is even more conservative than the 4% for after tax.  With after tax dividends greater to or equal to spending, I wouldn’t have to touch the after tax principal in addition to not touching the retirement accounts.

Conclusions and Actions

From the goals, it shows I need to increase my after tax savings.  However, with limited funds, I have to choose where to invest.  I can’t have it all!  I have prioritized my retirement savings in a 401k and Roth IRA over after tax savings.  I will continue to do so as it helps to accumulate the portfolio quicker, especially with the tax deferment of a 401k.  This might not help towards the early retirement part, but there are options available if needed.

 

What are your financial goals?  How do you track progress?  For future early retirees, how do you decide whether to invest in after tax accounts or pre tax retirement accounts?

4 Replies to “End of 3Q 2017: Goal and Progress Tracking”

  1. You’re doing pretty well when you consider retirement accounts! Balancing pre-tax and post-tax contributions is the big question, and I have recently started thinking about the best way to address this to meet early retirement needs.

    1. It is a journey. Good question on pre-tax vs. after-tax. It is easier to accumulate quicker in pre-tax accounts, but there are some challenges (but not roadblocks) when these are needed for early retirement. I have debated my approach, but I prefer to ensure I put as much as I can afford into the pre-tax.

  2. Sounds like you’re doing very well in terms of total investments. Using your formula, my living expenses consume about 29% of my total investments. Just don’t have enough saved. And I started 10 years ago.

    I chose to go mostly ROTH IRA and ROTH 401k for the last five years, but recently have switched back to Traditional 401k in favor of investing more overall. I like the idea of using the conversion ladder to move funds from Traditional 401k over to ROTH during low income years. And I plan to have a few of those starting in 2019, when I quit my job.

    1. I also used to invest in a Roth 401k, but after investigating further, I realized I would likely be better off putting money in pre-tax only. Although I can hope, I don’t realistically expect to have the same income as I do now when I retire, thus making the tax savings null.

      I am a little envious of your plan to quit your job in 2019. Being an engineer, I am conservative and would like to have a safety factor. No announcements coming for me in the near future on that!

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