A comfortable retirement requires a significant amount of savings and deft investment management. But achieving financial freedom isn’t the only necessity to retire well. You need to be able to use that money to create an enjoyable lifestyle that will last for decades, and find a way to fill those years with meaningful hobbies and social gatherings with friends and family. Here are five steps to create a happy retirement.
Make paying yourself a priority. By automatically putting money into savings, you are making sure you are saving part of every paycheck. You probably don’t miss your rent or mortgage payments because you make it a priority to pay them every month. You need to treat saving for retirement with the same urgency. Saving is something you need to do every month, just like every other bill.
Make an investment plan you can stick to. You need to create an investing strategy you feel comfortable with through thick and thin. No investment plan is going to outperform every other strategy during all phases of the business cycle. There may come a time in the future when your investment strategy falls out of fashion and makes you question whether it’s the right one to follow. You may feel like you made a poor decision, while everyone you know seems to be doing better than you. Yet, the key to investing successfully is to find a strategy that has stood the test of time, and stick with it throughout your lifetime. Unless you are confident you can outsmart the market and earn enough to offset the excess fees and taxes incurred by trading in and out of investments, you’re likely to be better off sticking with low cost index funds that capture the returns of the overall market. Compound interest can produce huge returns in your favor, but in order to take maximum advantage of it you need time in the market. That means riding out the volatility so that your earnings will grow over the long term.
Find a passion you enjoy. Many people who build a significant nest egg enjoy watching their wealth grow. This habit is certainly useful when saving for retirement. But it can be difficult to start the decumulation phase, because you have to accept watching your life savings slowly decrease. In order to be comfortable in your golden years, you need to find a hobby you like more than looking at your investments. Otherwise, you’ll end up being too frugal and fail to enjoy the wealth you worked so hard to accumulate. Sure, your heirs will be happy if you leave them a significant inheritance. But don’t become so obsessed with your investments that you fail to take advantage of the retirement you have earned.
Use money to increase happiness. One strategy to save is to spend extravagantly on things you value, and not a penny on anything that creates zero happiness. Many people I know love traveling and spend luxuriously on trips, while driving a beat up old car. I have a pretty nice ride, but haven’t paid for cable TV for a long time. There are different things that make all of us tick. Find out what they are, and you can ignore the other things that are sucking money away from your long-term goals. You can spend a lot of money traveling in style, leasing new cars and wearing nice clothing, but if you don’t get lasting enjoyment from these things you are just throwing money away. Instead, aim to spend money only on the things that boost your happiness, and eliminate the things that don’t.
Consider moving to an area where you have lifelong friends. I recently attended a wedding for a friend from junior high. Being back in town and having a mini reunion with many of my childhood friends brought a flood of emotions I never anticipated. I haven’t seen most of these people for a few decades, but I felt right at home. Sure, we are all different now and many of us have families of our own, but we still have so much in common due to our shared beginnings. You might be able to save money in retirement by moving to a new place that has a lower cost of living, but it makes even more sense to move to the place where you have the most buddies. I’d rather be living frugally among people I love than living like a king alone in my luxury suite.
David Ning is the founder of MoneyNing.com .
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5 Steps for a Comfortable Retirement originally appeared on usnews.com
