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Giving Your Retirement Plan an Annual Checkup

Giving Your Retirement Plan an Annual Checkup

May 24, 2022

When it comes to your retirement accounts, you may assume that once you have set up your contributions and assessed your asset allocation, you are free to “set it and forget it.”

However, even if you are not planning to make any market moves soon, you may want to work with a financial professional to perform annual maintenance on your plan. Like cars and homes, retirement accounts may benefit from a good top-to-bottom detailing to make sure your investment portfolio is balanced.

Here are five key steps investors should regularly take to ensure their retirement funds accurately reflect their goals.

1. Review and Amend Your Savings Goals

There is no one-size-fits-all answer to what savings goals are best. Some may want to prioritize retirement savings to gain the option to retire early. Others may want to focus more on enjoying their funds now. But no matter what your savings goals are, your retirement plan needs to reflect them. Are you invested aggressively (or conservatively) enough for your risk tolerance and retirement horizon? Should you be putting more money into pretax or post-tax accounts? By periodically reviewing your goals, you may be better able to respond to whatever the market may throw at you.

2. Boost Your Contributions

One easy way to increase your retirement contributions without feeling any strain is to allocate a certain percentage of each raise or pay increase toward your retirement. This allocation may allow you to boost your savings rate while still bringing home the same or perhaps more pay.

3. Rebalance Your Portfolio

Whether your desired asset allocation is all stocks, all bonds, or something in between, periodic rebalancing is necessary to ensure that your asset allocation remains stable. For example, if your stock funds tend to grow much more quickly than your bond funds, they may take up a disproportionate percentage of your portfolio after a few years. By moving some of these assets back into bonds at set intervals, you may be able to reclaim your original asset allocation.

4. Consolidate Stray Accounts

If you had a 401(k) or another type of retirement account at a previous job, this account might not automatically transfer into a new account at your current employer. As a result, many investors who change positions a few times over their career may have retirement funds stashed in several old 401(k)s.

It is easier to manage your funds in a single account. It also makes your retirement calculations easier when your available funds are all in one place. Otherwise, you could risk losing track of these accounts—some of which wind up in state “unclaimed property” ledgers each year if the account administrator goes out of business.

If you have one or more stray 401(k)s out there, consider transferring them into your current 401(k) or investment retirement account (IRA). Unlike taking an early withdrawal from your 401(k), transferring it into an active retirement account does not carry any penalties or tax consequences. This transfer may happen by filling out a form. There may be other options regarding your former employer 401K that we recommend you talk to a financial professional before deciding what may suit your particular situation.

5. Review Your Beneficiaries

Circumstances change throughout a career, and the beneficiaries you named when you first began a retirement account may no longer be the ones you want to inherit your assets if you pass away. If you got married, divorced, or had a child in the last few years, review your beneficiaries carefully to ensure they still reflect your wishes.

By keeping these maintenance tips and tricks in mind, you will be better prepared to give your portfolio an annual tune up.