Market indexes have become the gold standard for measuring the economy’s relative success and failure. As a result of this, we have slowly become a society that measures our own personal investment successes and failures based on these same indexes. These indexes do not know who you are nor do they know what you need for retirement. I get it. We all want to know how we are doing, but there has to be a better way to measure success and failure than comparison to impersonal and volatile market indexes that routinely move up or down simply based on the news of the day.
If you truly want to measure your success and failure in relation to your retirement preparation, then you need to make it personal. Personal benchmarks are a great way to know if you are on track to achieve your retirement success. So, what do personal benchmarks look like? I am glad you asked!
In order to set up personal benchmarks, you will need a retirement plan that clearly lays out the amount of income your investments will need to generate in retirement. Once you know how much retirement income you need to generate, then it will be easy to monitor how well you are tracking your specific need.
Take out your latest brokerage statement. I want to show you what to look at to find out if your investment are making investment income. Before I go over that, I want to make sure you understand what I am talking about. Investment growth and/or loss is not the same as investment income. Growth comes and goes on a daily basis, but investment income, in the form of dividends, is something that can be generated no matter if the investment value goes up or down.
Now, pull out your investment statement and look for the section that says estimated annual income. The figures that show in this column represent your estimated annual income. If you have a retirement plan, look to see what annual income your investments need to generate on an annual basis. If the income figures on your statements are larger than what is needed on your retirement plan, then you are in great shape. If they are not, then you may need to rethink your investment strategy.