End of July 2017: Goals and Progress Tracking

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 July 2017: Goals and Progress Tracking”

  1. I like that you separate out the primary and secondary 4% rule goals for tax deferred vs. taxable accounts. That’s always been in the back of my mind, but I haven’t been able to verbalize it until now.

    Your charts look awesome! I like this analysis. I might have to borrow your approach for my own finances…

    1. I wanted to share my progress, but I don’t think I’m ready to post the actual numbers…in engineering we use ratios, so that is the unit of measure I decided to use. If you have any questions on the analysis, don’t hesitate to ask!

  2. Thanks for sharing! Great goals! Although that #4 (even #2), is supremely difficult for most; and dare I say, too conservative? It is ideal though for sure. But given that dividends for the total us stock market is roughly 2%, one would need $2M just to get $40K a year. I think the 4% rule makes sense, within reason (I actually like the variable percentage withdrawal myself – and not fixed).

    1. Thanks for the comment! I agree about how conservative #2 and 4 is. I feel like I need a safety factor greater than just the 4% rule. Do you happen to have a blog post on how you plan to be flexible?

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