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Retirement Plan Maintenance: Are You on Track?

As the year comes to a close, our series One Year to a Better Retirement is focused on helping you build a successful, long-term retirement plan. Last month we talked about how debt, taxes and a lack of planning can keep you from reaching your retirement goals.

Today, we’ll show you how to perform your own annual retirement plan maintenance check. It’s a simple process since there are only three areas you need to review.  

Revisit Your Original Plan

If for any reason you backed off investing this year, now’s the time to get back on track and invest 15% of your income in tax-advantaged retirement savings plans. Are you:

  • Investing enough in your workplace retirement plan to receive your full employer match? If not, you’re leaving money on the table. Talk with your human resources department to make sure you’re taking full advantage of your options.
  • Next, invest the remainder of your 15% in a Roth IRA. If you max out your Roth IRA contributions ($5,500 for 2013, $6,500 if you're 50 or older) and you still have money left over to invest, increase your contributions to your workplace retirement plan.
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If your home is paid off and your kids’ college funding is in place, you can increase the amount you invest each month to build up your retirement fund even faster.

Rebalance Your Funds (If Necessary)

Your retirement funds should be invested equally in four types of mutual funds: growth, growth and income, aggressive growth and international. Your holdings will often get lopsided, however, because some funds grow faster in certain market conditions while others grow slowly or even lose value.

Emotionally, it’s difficult to sell off your better-performing funds and put that money into the sluggish ones. But maintaining this balance (25% in each of the four fund types) spreads out your risk and forces you to buy low and sell high—a key to successful investing.

It may not be necessary to rebalance every year, but if your asset allocation is significantly out of whack, check with your financial advisor for advice about restoring equilibrium.

Check the Performance

Stocks have had a great year this year. As of the last week of October, the S&P 500 is up 23% for the year, and it’s reasonable to expect that as a group, your funds will keep pace with the S&P.

If they haven’t, it’s worth noting, but it isn’t a reason to dump your funds today. If they continue to consistently underperform over the next few months, it’s worth a conversation with a financial advisor for their perspective.

When you’re investing for the long term, it takes a lot more than one year of less-than-optimum performance to give up on the funds you’ve chosen, so be patient.

Make Wise Adjustments With Professional Advice

As we mentioned, if you need to increase the amount you’re investing, rebalance your funds, or just ask questions about your funds and their progress, your financial advisor will be glad to help.

Work with an experienced advisor who has the heart of a teacher like Dave recommends through his Endorsed Local Provider (ELP) program. Your ELP will show you how to keep your long-term investing plan on track so you can meet your retirement saving goals. Find your ELP today.

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