Quick note: As you may have noticed, I’ve been writing a little less frequently the last several weeks. I’ve been burning the midnight oil studying for an exam I need to take for work. That will be out of the way soon and I’ll be back to posting a few times per week. Onward to today’s article.
Since happiness is an almost universal goal (especially for retirees), I periodically write about what, according to the latest research, makes us happy. Today is Part 3 in that series. Feel free to go back and check out Part 1 and Part 2 if you missed them.
I was browsing through Netflix recently looking for something to watch and I came across a documentary with the eye-catching title of “Happy.” The filmmaker interviewed researchers as well as regular people from all walks of life in 14 different countries in order to get an idea of what makes people happy.
According to the research our individual happiness is attributable to three areas:
- Genes: 50%
- Circumstances: 10%
- Intentional Activity: 40%
Looking at the glass half empty, we have very little control over a majority of our level of happiness. We don’t control our genetic makeup and our circumstances are often the result of what Warren Buffett calls the ovarian lottery (for example, being born in the U.S. instead of the slums of Kolkata).
Looking at the glass half full, we can still have a huge impact on our level of happiness by being intentional with how we spend our time. [Side note: This site is called Intentional Retirement for a reason.] With that in mind, what kinds of activities can we focus on that will help increase our happiness level? The film lists several:
- Focus on activities that release dopamine. Dopamine is the chemical in our brain that is responsible for feelings of pleasure. Our bodies naturally produces less dopamine as we age, but you can boost those levels through diet, exercise, game playing and cultivating happy relationships. In other words, you will be happier if you cut out the junk food, go hiking, play chess (or engage in other fun activities) and spend time with family and friends.
- Vary what you do. Sometimes having a routine makes life routine. Vary your day. Try new things. Learn new things. Meet new people. That variety leads to increased happiness.
- Get off the hedonic treadmill. I talked about this concept in Part 2. Rather than spending your money on more stuff that you will quickly get used to, spend your time and money on experiences that have a longer happiness shelf life.
- Have a close, supportive family. Every happy person the film studied had a close, supportive family. It wasn’t a perfect family and they didn’t get along with everyone in the family, but they had key family relationships that were healthy, loving, and encouraging.
- Work on something bigger than yourself. Focusing exclusively on your own wants and needs can be fun for awhile, but it eventually grows stale. Have a mission that is bigger than just you and involves things like helping others or volunteering.
- Focus on Intrinsic Goals rather than just Extrinsic Goals. People focused on Extrinsic Goals (e.g. money, image, status) reported less happiness and more depression than those focused on Intrinsic Goals (e.g. personal growth, relationships, a desire to help others).
So it turns out that achieving happiness shouldn’t be that hard. The things we love doing—play, experiences, friends, good food, meaningful activities, being thankful, helping others—are also the things that are the building blocks of happiness.
Just like it’s a good idea to get a health checkup every year, it’s a good idea to get a financial checkup as well. Doing so can help you detect problems early (while they’re still treatable) and will also help you gauge your progress and make sure you’re on track for a healthy retirement.
To help, I put together this Financial Checkup Checklist with areas that you should be reviewing. Go through it and then touch base with me if you have any questions or there’s anything I can help you with. Have a great week!
Well, another year is in the history books. Where does the time go? It seems like just yesterday that I was singing along to Prince’s “Party Like It’s 1999” and worrying that my coffee machine was going to be a victim of Y2K and here we are a “Baker’s Decade” into the new millennium.
As the years go by, I, along with millions of others, find the idea of retirement morphing from a vague concept to an impending reality. The signs are subtle at first. An AARP magazine in the mailbox. A “take this job and shove it” daydream at work. A lingering glance at the orange and red sections of the USA Today weather map. If retirement looms large on your horizon, then there’s no time to waste. Below are 7 resolutions for the New Year to make sure that your planning is on track.
Recalibrate after the “Fiscal Cliff.” As the dust settles in Washington, there are several variables in your retirement plan that you may want to review. In particular, any changes in your tax bill can affect everything from your planned retirement date to your distribution strategy. Entitlement reform was delayed (color me surprised!), but any eventual changes to Medicare and Social Security will also affect your retirement. Schedule a meeting with your adviser to factor in these new variables and make sure that your plans are still realistic.
Increase your contributions. Are you getting a raise in 2013? Sure you could use that to upgrade your iPad or buy tickets to the soon to be announced Rolling Stones tour, but a third option would be to route that extra cash into your retirement accounts. Contribution limits for 2013 are increasing to $5,500 (plus an additional $1,000 for those over 50) for IRAs and $17,500 (plus an additional $5,500 for those over 50) for 401(k)s.
Create a debt payoff plan. If you subscribe to the 4 percent withdrawal rule, then for every $1,000 in income you need to generate during retirement, you’ll need $25,000 in assets. Doing some simple arithmetic, it’s easy to see that retiring with a mortgage, car payment or other debts can add hundreds of thousands of dollars to your “Number.” Reduce that burden by committing to a plan to retire debt free.
Get on the same page with your spouse. Try this experiment. At the dinner table tonight say “I can’t wait to retire in 2016 so we can move to San Carlos, Uruguay and I can realize my dream of becoming a real life gaucho.” The response that you get will show you how important it is to be on the same page with your spouse when it comes to your retirement planning. Now that the conversation is going, spend some time talking through your hopes, dreams and plans so that you can iron out any differences and compromise on a plan.
Take a mini-retirement. You wouldn’t want to get all the way to Uruguay only to second guess the whole gaucho thing. As you get closer to retirement, you should start using whatever vacation and sick time you have to test drive your plans. A mini-retirement is a great way to learn more about a place or to experiment with your retirement budget. Use what you learn to refine and improve your plans.
Set aside your first year of expenses. In case you hadn’t noticed, the financial markets have been a bit—what’s the word?—schizophrenic the past decade or so. If retirement is just around the corner, you run the risk of having to withdraw money from your nest egg at a time when your investments are performing poorly. Experts refer to this as sequence risk. To avoid that problem, set aside one year of your retirement expenses in cash. If the markets are doing well, you can draw income from your investments. If markets are doing poorly, you can draw from your cash and give your investments a chance to recover.
Update your estate plan. Estate and gift taxes were scheduled to change drastically in 2013, but got a last minute reprieve with the deal in Congress. The estate tax rate increased to 40 percent from 35 percent, but other than that, most existing estate tax rules were made permanent. Work closely with your attorney and financial adviser to make sure that your plan is up to date and designed to minimize taxes. Also be sure to have a strategy in place to cover any potential liability (e.g. life insurance) and make sure that your beneficiary designations and powers of attorney are up-to-date and reflect your wishes.
That list of resolutions makes me long for the days of simpler goals like “join a gym” or “quit smoking.” But hey, no one said retirement was going to be easy. If it was, the world would have more gauchos.
I originally published this article at www.marketwatch.com. Photo by Sacha Fernandez. Used under Creative Commons License.