Friday, January 6, 2012

Review of 2011 and New 2012 Financial Plan

The financial markets of 2011 reached their peak in April and turned down over the summer but ended the year nearly flat. The S&P 500 had a total return (including dividends) of 2.11% for the year. Many dividend stocks increased their dividend payments in 2011 as they did in 2010.

A few years ago I started tracking our yearly progress towards reaching our retirement goals of having $2 million in retirement assets as well as reaching $30,000 in dividend stock income. I originally wanted to complete both these goals by the time I am 60 which is 13 years from now. But with the market decline in 2008, we will have to add a couple of years to our goal and our new plan is to retire at age 62 which is in 15 years. I have been using Bloomberg's Retirement Planner on their personal finance calculators site to come up with what we will need at retirement.

2011 Retirement Goal
$615,699 2010 year end retirement asset balance
$52,334 8.5% investment return
$9,500 2010 contributions to our retirement accounts
$677,533 2011 year end goal

Retirement Assets
In order to reach our retirement goal, we will need an average investment return of 8.5% along with a 10% contribution to our retirement plans for the next 15 years. I have used $95,000 for our annual household income that we will need in retirement. I am using 3% for inflation, 2% for expected salary increases and 8% return on investment during retirement.

We finished 2011 with retirement assets of $624,115 versus our end of year goal of $677,533. So we were $53,418792 under goal for the end of 2011.

To calculate the amount needed for the end of 2012, I start with our 2011 year end retirement balance of $624,115 which is the balance of our retirement accounts as well as our taxable stock accounts. We then add the 8.5% investment return which is $53,049 for a total of $677,164. Next I add our retirement contributions of $9,500 which is a 10% contribution for a grand total of $686,664 in retirement assets needed at the end of 2011.

2012 Retirement Goal
$624,115 2011 year end retirement asset balance
$53,049 8.5% investment return
$9,500 2010 contributions to our retirement accounts
$686,664 2012 year end retirement goal

As part of our retirement contributions, we will make contributions to our Roth IRA's as well make 6% contributions to our 401(k) and 403(b) plan.

2011 Net Worth Goal
$677,533 2011 year end retirement goal
$205,000 House
$30,000 Cash
$6,000 Cars
$3,000 Personal Property
$38,000 529 Accounts
$959,533 Total

Net Worth
We finished 2011 with an actual net worth of $938,892 versus our 2011 Net Worth goal of $959,533 which is $20,641 under the 2011 goal.

2012 Net Worth Goal
$686,664 2012 year end retirement goal
$205,000 House
$140,000 Condo
$30,000 Cash
$16,700 Cars
$3,000 Personal Property
$45,000 529 Accounts
$5,811 Car Loan
$107,942 Condo Mortgage

$1,012,611 Total

Let's hope the 2012 plan goes better than in 2011. I will go over my 2012 Dividend Income Goal on Monday.


Anonymous said...

Including cars and personal property in your net worth calculation? That is truly a very liberal interpretation of what constitutes an "asset".

I go so far as to exclude our principal residence when calculating our net worth even though it is mortgage free and could sell for $400,000+. I don't view it as an "asset" because it does not generate revenue. It is merely a place to live. If you think I am taking things to the extreme, I can assure you there are thousands of people in North America who would readily tell you their principal residence is far from being an asset even though they may NOT necessarily be upside down re: mortgage/value!!

Div Guy said...

Anon, I disagree with you. Here is the definition of an asset. How is my interpretation liberal?

An asset is any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property.

Anonymous said...

A century ago in Great Britain when London served as the financial capital of the world, you would have heard, “He has a private income of £500,000 per annum.”. This refers to the household income generated by the investment portfolio and represents the (passive) money the owner could spend without ever touching his principal. Due to its origins, it can be refered to as the “British” way of measuring wealth. The total absolute and relative amount of income you earn determines your place among the hierarchy of the rich.

The British way for thinking about wealth is much more conducive to becoming successful and financially independent rather than thinking in terms of net worth. Think of all of the lottery winners who go bankrupt. If they instead thought in terms of the money they would earn each year from their wealth, instead of the total wealth they won, it is unlikely they would have spent all of this principal.

Div Guy said...


Thanks for your words of wisdom. My relatives left England in 1639 so I am going to stick with the accounting definition of net worth. You can follow my dividend income post each month on my stock account and get my updated per annum. Cheers.

Financial planner perth said...

One of the more challenging parts in planning your retirement finances is the consideration of inflation rates. The value of money today most probably won't be the same in the next couple of years.

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At least you were able to come up with the plan. It helps to have a direction in organizing your finances.

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Planning is important in managing your finances. At least, you have set a goal for this year. Let us hope for the best on your 2012 Plan

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Curious george said...

Why only 6% towards 401k? Seems you can afford to contribute max. Why not benefit from deferring taxes?


Great list of ftocks.

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