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Retirement

7 Signs You’re on the Road to a Happy Retirement

Happy Retirement

Just like signposts help us navigate our journey down the highway, there are certain tell-tale signs that indicate where we are in our financial journey and happy retirement planning.  Today, I urge you to check your status among these 7 key signposts to determine where you are in your personal journey toward financial independence.

Happy Retirement
To develop this list, I’ve consolidated ideas from several publications I’ve read recently (including this article on Learnvest), then incorporated themes into my personal list with my commentary on each item.

Here, then, are my Top 7 Signposts to measure how you are progressing on your own personal journey to a happy retirement.

1)  You Owe No Debt Beyond Your Primary Residence

Given the excessively highest interest cost on credit cards, eliminating this debt should be one of your first priorities on your journey.  I’d argue you should build a 4 week emergency fund while paying down your credit card debt.  Once both are achieved, you should work through your debt obligations in sequence, paying down highest interest loans first. Once you’re “debt free” (with the exception, perhaps, of your mortgage), you’re well on your way to a happy retirement.

2)  You Have 6 Months of Take-Home Pay, Tucked Away Safely in an Emergency Fund

If you’ve gotten to the point where you have 6 months of emergency fund, you’re moving into the league of folks who take their finances seriously.  Knowing you can cover unexpected items which derail the majority of other people brings a significant peace of mind, and indicates you’ve built a sound foundation to your journey.

3) You Know Your Net Worth, and It Exceeds Your Annual Income

I wrote an entire blog post on the importance of the Net Worth statement (see “How Much Fuel Is In Your Tank” ), and consider it a key milestone when you complete your first net worth statement.  This is the best indicator of your total financial situation, including both assets and debts. Record it every year (or, every 6 months), and enjoy see the impact of your wise daily finance decisions resulting in a growing balance every year.  As you get older, use websites to track what your targeted net worth should be for your income level, age, and targeted retirement time-frame.  I’m planning some future articles in this area.

4) Your Investments Are on Autopilot

You max out your 401(k), IRA or other employer retirement plans, and you do it automatically with every paycheck.  If you’re not yet at your maximum contribution limit,  take 2/3 of every pay raise and increase your automatic contributions by this amount (e.g., if you get a 3% raise, increase your savings by 2% and your take-home pay by 1%).  By the time you’ve hit your early 30’s, as well as contributing the maximum to your 401(k) you should also be automatically contributing via ACH to after-tax accounts, such as mutual funds or ETF’s.

5) You Know & Manage Your Asset Allocation

Diversification.  As your investment portfolio grows, managing how your assets are allocated becomes increasingly important.  There are great tools out there to help with this process (e.g., Personal Capital), and there are fewer excuses not to do it.  I wrote a blog named Where To Put Your Money  which addresses some of the asset classes. Also, make sure you’ve identified personal goals for your money, and set detailed targeted allocation percentages by asset class to support your goals.  Review at least once per year to re-balance as necessary.

6) If You’re Within 5 Years of Retirement, You Have a Plan

A complete retirement financial plan includes income you can reasonable expect to draw from all sources, spending requirements, contingency plans, major life cash flow events (e.g., weddings) and cash flow through the balance of your expected life.  You should also have time-phased “buckets”, including a 2-3 year cash reserve to insure you don’t have to make withdrawals from any particular sector during a severe downturn.  See the “When Can I Retire” series for more on the topic, I’m also planning some future articles on how to track your cash flow and carry out an annual check-up process after you’re in your retirement years.

7) You Focus on Life, Not Just Money

A truly happy retirement requires more than just having enough financial resources.  You spend time thinking about the things that are really important in life, including your relationships, charity, mental framework, and spirituality.   In addition to a financial plan, you have a personal plan for how you’re going to develop the other areas of your life that lead to a great retirement. Develop a “bucket list” for other areas of your life, and dedicate time to thinking through how you want to spend your free time after your commitment to work is a memory.

If you can say “yes” to 6 or 7 signposts above – congratulations!  You’re doing the right things to meet a happy retirement.  Stay strong, stay focused – the future is bright.

If you can answer “yes” to 4 or more of the above, you’re better than average but have some work to do.  Focus on closing the gaps.

If you can answer “yes” to 3 or fewer – you need to get serious about this issue while you still have time.  Consider hiring a professional Certified Financial Planner to help you through your retirement planner.  Don’t delay – the implications are far too serious to delay any longer.

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