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Staying on the Path to Retirement SavingsSubmitted by Paul B. Miller, CFP on April 11th, 2016
Just as a distance runner might find it difficult to focus on an entire marathon, investors struggle to stay on a path toward a financially healthy retirement. Preparing for your retirement finances should be viewed as a marathon, rather than a sprint. Unless you win the lottery tomorrow, you are not going to be prepared to retire at the end of the year or even the end of the decade. So, what can you do to stay on the path toward retirement?
Track Your Progress
The easiest way to stay on the path to building adequate retirement savings is by actually checking in on the progress of your plan from time to time. If you record the growth of your retirement accounts on a biannual basis, or every 5 years, you will feel more connected to your money and easily track its progress.
More importantly, you can update projections for your retirement plan by updating information regarding your savings, income, and expenses as those factors change with time. Doing so allows you to see how changes in your investment performance and cost of living are impacting your retirement plan.
Keep Your Portfolio on Target
While it is wise to check in with your portfolio and examine the big picture at greater intervals, you might want to check your investment portfolio with further regularity. Most experts recommend checking on your investments on an annual basis to monitor the ups and downs of your retirement savings.
When it comes to asset allocation, natural movements in the market can create a lack of balance in your portfolio. As a result, you might find your funds exposed to more risk because they are too heavily weighted toward one type of investment. On occasion, rebalance your portfolio to ensure it is still on-target for your retirement goals.
Bankrate recommends decreasing your stock market risk within your portfolio as your retirement age approaches. As you near retirement, you will want to protect your income and maintain a steady flow of money. Exposing it to greater risks can negatively impact your cash flow, especially in the event of a stock market dip right before or after you retire.
Plan for and Adjust to Life Events
Where you are in life when you begin saving for retirement is nowhere near where you will be at age 65. Life comes with a lot of ups and downs that can pose different challenges for your retirement savings. Significant life changes should be an indicator to take some time out to look at your retirement plan.
For example, if the foundation of your retirement savings is an employer-funded plan, the moment you consider changing or pulling the trigger on a job change, you should look back at your plans to see how those changes might impact your retirement savings.
Other factors to keep in mind include marriage, divorce, and even a deployment. Members of the US Armed Forces might have different reactions to a deployment. Some are able to bring in extra pay for separation allowances and set aside more money, while others might face financial hardships at home with the loss of a caregiver in a family with young children.
As Chase points out, it is important not to overlook changes that come during retirement as well. For example, you need to plan for and adjust to healthcare costs during your retirement. While your employer's plan might have been generous while you were working, Medicare and private insurance might not cover you as adequately as your former employer's plan.
Overall, keep an eye on the long-term impact of life on your retirement savings. Planning and saving for retirement is not a 5K, it's a marathon. Plan accordingly to avoid stumbling before the finish line. For more help, navigating through your retirement contact Paul Miller of Indian River Financial Group.