Happy New Year to all of my fellow baby boomers. We made it to another decade which as they say, beats the alternative. Time for a brief look back at 2009.
These are some significant 2009 milestones from our retirement planning:
1. We paid off the mortgage on our lake house. When we started to see that light at the entrance to the phased retirement tunnel, we realized that we needed to accelerate our efforts to create a mortgage-free life. At the same time, we understood that paying off the mortgage would provide a guaranteed return on our money, whereas the equity markets were in turmoil. All of this caused us to open a new high-interest savings account and to begin diverting as much free cash as possible into that account. In February, we pulled the trigger and payed off the lake house mortgage. Now we have a place to live – for as little or as much as we want when we retire – that we own, not the bank. So far all of our kids seem to enjoy spending time together there – particularly on holidays – so we hope to keep our lake house in the family for a long time.
2. We created a plan for guaranteed retirement income. After much study and consideration, we decided to focus more on investing in ways that will secure a basic retirement standard of living under worst case scenario conditions, including high inflation. Our plan for guaranteed retirement income was born. It has been partially funded but we need to acquire more TIPS (Treasure Inflation Protected Securities) with different maturities. Unfortunately, the Treasury hasn’t held many TIPS auctions in recent months. But we have time.
3. We maxed out our HSA contributions (and didn’t spend any). In late 2008, I wrote about our plan to use our Health Savings Account for tax-free retirement investing. In 2009, we were able to fund our HSA to the maximum allowed by law. Because we did not use any of our HSA money for current medical expenses – and with the market rebounding beginning in March – our HSA balance has increased to five figures. I hope this can continue all the way into retirement, at which time we can begin to withdraw those funds and accumulated earnings – all tax free – to reimburse past and current medical costs.
4. We started a condo purchase. Downsizing from our current Tennessee house is a probability after our youngest son finishes college. Realizing that living full-time at the lake was not an optimal plan for retirement, we decided to look at alternatives. We discovered Long Branch Lakes on the Cumberland Plateau, liked it, and put some money down on a condo that existed only on paper. Sometime this year the condo will be built and we can spend some weekends there. This will be sort of a low risk experiment in condo living to see if we like it. If we do, a second retirement living destination is in place.
5. We increased our net worth. I like monitoring net worth as a measure of financial progress. Net worth is what retirees need to live off, assuming that pension or Social Security income is not enough. That is definitely true for us. I have no pension. Social Security retirement benefits will certainly help but we will need more. Our net worth increased by 15.3% in 2009. This resulted from a combination of a 16.8% return (Internal Rate of Return) on all of our investments plus we continue to stash cash to complete the condo purchase. We could have done better on the investment returns but, as noted above, we have decided to trade some potential upside for retirement income security. Thus, our exposure to the equity markets was deliberately reduced in 2009.
6. We increased our alternative income stream. I blog here and at Tough Money Love for three reasons: (1) I enjoy it; (2) It forces me to increase my knowledge of retirement planning and personal finance; and (3) the advertising provides a little extra income. I am gratified that traffic has grown here which has resulted in an increase in site revenue. Most of that revenue comes from folks who arrive here via a search engine, read something here, then click on a link to read more somewhere else. I hope the upward trend continues but that will depend on overall trends in Internet usage and advertising.
Overall I am pleased. Could we have done better? Sure. Are we financially ready to retire – not yet. But we are measurably closer now than we were at this time last year. I can’t ask for much more than that.
How well did your retirement planning progress in 2009? Do you have any suggestions for me?