2012 Performance Summary

I spent some time this weekend looking back at 2012. The number one statistic I evaluate is our net worth because that is what will be generating our retirement income when the time comes. Investment performance is also important but not as important to me as net worth. For example, our retirement portfolio could increase in value by 20% over the year but if we offset that with more debt or spending that depletes our cash, we really haven’t accomplished much. It’s about accumulation.

So here is a quick look at the numbers:  Our net worth increased 7.6% in 2012. Only 0.1% of that occurred in the 4th quarter.  Compared to the end of 2010, our net worth has increased 14.9%.

The increase is from a combination of maximum contributions to our retirement accounts, i.e., a 401(k) account and Health Savings Account, and our investment returns.  (Yes a Health Savings Account is an awesome retirement investment vehicle!)

The bulk of our retirement investments are in my 401(k) account.  My personal rate of return in that account for 2012 was 4.95%.  I am happy with that considering how little risk we are taking in our investments. This includes a large CD ladder which I just extended.

Our best performer was LTPZ, a long bond TIPS fund. It was up 9.9% in 2012.

We have some investments in taxable accounts that I will  be evaluating this first quarter. I want to simplify things there, just as I am trying to do in other parts of my life.

Our net worth growth could have been better if we hadn’t spent a chunk of change on our son’s wedding and an even larger chunk updating our master bath. But both of those expenditures were well worth it so we have no regrets there.

2013 should be a decent accumulation year because we refinanced the mortgage again and continue to cut recurring expenses. This frees up more cash to stash away for retirement.

How was your 2012?


  1. Bill says

    Net worth up 8.74% for the year, and 17.07% over two years. Both are due in large part to hitting the upper maximum (the $50K one) on 401k plan both years. We never get ahead on the Health Savings account, as medical bills exceed the contribution limit.

    But I question whether net worth is the best measure for year-over-year comparison. At some point, like when we stop working, net worth will start to decrease. That should be OK, and the measure for comparison should still be able to indicate whether there are rough roads ahead.

    The measure I use is what I call the “safety margin” and it is calculated as follows: First, assume I stop working today, and there is no further income. Second, project expenses into the future, increasing at inflation rate (granted, there is a lot of uncertainty about expenses in retirement, since I haven’t been there, so I use a conservative percentage of current expenses). Third project savings balances into the future assuming a minimum “floor” rate of return over the inflation rate. Fourth, do the year-by-year calculations of what is left (excel is great for this), accounting for income taxes on the tax-deferred accounts, up through age 105. The amount left over at age 105 is the safety margin.

    As I continue to put off retiring, I expect the safety margin to increase — by not drawing from savings to cover living expenses, by continuing to contribute to the various savings and investment accounts, by Social Security getting more of the high-income years to average, and by the company pension getting more contributions. But I anticipate when I actually retire, the safety margin should stay roughly constant.

    Of course the safety margin is dependent on lots and lots of assumptions, and the best guess for some of those figures changes from year to year. In 2012 I reduced the floor return (minimum return I am willing to guarantee getting when I’m in my feeble mid 90s) to -0.8% over inflation (consistent with current 10-yr TIPS). I also reduced the Social Security benefit payments to 78%, starting in 2037, based on the do-nothing Congress. On the plus side, in addition to max’ing the 401k, we did a significant Roth conversion taking advantage of 2012’s rates.

    So with those adjustments and by continuing to work through 2012, our safety margin increased by $700K over the past year. That made it a good year.

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