Financial Independence January 2017 Update
Welcome to our January 2017 update on our financial independence progress, aka “The Plan” . 2016 finished strong from a stock market perspective!
Diversification Did Its Job Toward Our Financial Independence
Large cap stocks gained about 10% for the year, but the mid and small capitalization stocks had about double that growth. The US stock portion of our portfolio is made up of 50% large cap and 50% mid/small cap. That mix put up about a 15% gain for the year. Dragging our returns back down was our international equities and US bonds. Together they make up 40% of our tax-deferred portfolio. So, the total return of our investment portfolio came in just under 11% for the year. We’ll gladly take that!
Similar to comments I made last month, the 2016 US stock bull market was a double edged sword for us. While really good for retirees and those selling US stocks, the higher valuations resulted in fewer shares for our purchase dollars. But, we aren’t trying to time the market and we’ll stick to our purchase and portfolio allocation. We’re in the market for the long haul, so whether up or down, we’ll stay the course.
December Expenses and Other Saving
Our saving rate outside our tax-deferred retirement accounts started out strong at the beginning of the month, but fell off sharply as holiday expenses mounted. Overall, our spending for the month for December was about $500 over budget, mainly due to extra dining out and unanticipated clothing purchases. The consequence of which was much less saving into our reserve cash account. My plan is to get us back on track in January by cutting our spending back to compensate for the over-spend in December. It won’t be easy, but I think we can do it. I think we’ll need to be doing a much better job controlling expenses in the future if we expect to support a sustainable financial independence. With a much smaller income expected in (semi-) retirement, we’ve got to get better at managing expenses.
College saving is on track and I was able to fund our monthly contributions to the 529 accounts for our sons. I expect to not contribute to our oldest son’s 529 plan in January. I’ll use that money to cover an expense for his study abroad program coming up in the Spring. More on that next month.
Just like last month, I declined to pay extra on our little car loan, putting money into our reserve cash account instead. I believe we will still be able to pay the car off in late Spring by making extra payments in April and May.
Preparing for 2017
I spent some time this week checking our payroll deductions for 2017 and we’re all set to max out our workplace 401(k) plans. 401(k) contribution limits are unchanged from 2016. Jenny will contribute $18,000 into her plan. From my paycheck, I’ll contribute $24,000 since I can put in an extra $6,000 for catch-up contributions. I guess that’s one advantage to being 50 or older. (It’s a pretty short list, so I’ll take what I can get!) So, together we’ll plan to put away $42,000 into our tax-deferred accounts. That’s a big chunk of our income for the year.
To make that sound even better is the matching funds we get from our employers. Together we’ll get about $7,700 in matching funds, so that $42,000 grows instantly to $49,700, no matter how the market performs! Wow!
Wrapping all that up, where does that put us on our wealth accumulation trajectory? Pretty damn good so far and we feel great about it. If you head on over to the “The Big Graph”, you’ll see it’s showing we’re way ahead of our 5 year plan for hitting our goal. But, I’m not so naive to think 2016 is going to be representative of growth in future years. I am still concerned about stock valuations. It isn’t keeping me up at night, though. I won’t be surprised if a correction rears its head sometime in the next couple of years. If things go to plan, I’ll have some “dry powder” cash socked away in our reserve account to take advantage of that correction. But, it bears saying again that we aren’t trying to time the market. We’re diversified and sticking to our purchase plan. 2017 here we come!
Happy New Year, everyone!
Did your 2016 plans towards your financial independence work out as expected? Any big changes to your plans for 2017?
Posted by Jeff