The Loop Newspaper - Tehachapi's Online Community News & Entertainment Guide

By Jennifer Williams
President J Williams Personal Financial Planning 

Have you checked your retirement plan lately? – Part 1

Jennifer's Thoughts

 
Series: Your retirement plan | Story 1

It's generally a good idea to review your employer-sponsored retirement savings plan at least once each year and when major life changes occur. If you haven't given your plan a thorough review within the last 12 months, now may be a good time to do so.

Have you experienced any life changes?

Since your last retirement plan review, have you experienced any major life changes?

For example, did you get married or divorced, buy or sell a house, have a baby, or send a child to college? Perhaps you or your spouse changed jobs, received a promotion, or left the workforce entirely. Has someone in your family experienced a change in health? Or maybe you inherited a sum of money that has had a material impact on your net worth. Any of these situations can affect both your current and future financial situation and should be considered as you review your retirement savings needs.

In addition, your annual review is a good time to examine the beneficiary designations on your plan account to make sure they reflect your current wishes. This is particularly true if your marital situation has changed. With most employer-sponsored plans, your spouse is automatically your plan beneficiary unless he or she waives that right in writing.

Say, for example, you remarried and you would like your children to remain as primary beneficiaries on your retirement plan. In that case, your spouse would need to waive his or her right to the assets in writing.

Reassess your retirement income needs

After you consider any life changes, you may want to take another look at your future and evaluate whether your anticipated retirement income needs have changed.

Have your dreams for retirement changed? And if so, will those changes affect how much money you will need to live on? Maybe you've reconsidered plans to relocate or travel extensively, or now plan to start a business or work part-time during retirement. Or maybe your health or your spouse's health has changed and you need to adjust your estimates for health-care costs down the road.

All of these factors can affect your retirement income needs, which in turn affects how much you need to save and how you invest today. Double-check your total accumulation goal and determine whether you will need to adjust your savings or investment plan to strive for different amounts.

Reexamine your risk tolerance

In any long-term investment plan, you can generally expect that there will be times of uncertainty that will cause you to question your investment decisions. Following periods of prolonged increases in the markets, it's not unusual to experience corrections or even bear markets.

When you hear media reports about stock market volatility, is your immediate reaction to consider selling some or all of the stock investments in your plan account? If that's the case, you might want to revisit your risk tolerance.

Risk tolerance refers to how well you can ride out fluctuations in the value of your investments while pursuing your long-term goals. An assessment of your risk tolerance considers, among other factors, your investment time horizon, your accumulation goal, and assets you may have outside of your plan.

If your time horizon is decades or you have a lot of assets outside of your plan, your investment risk tolerance might be higher than someone who is less than 10 years from retirement or has little other savings.

There are many tools available to help you evaluate your risk tolerance. These are typically questionnaires that ask about your personal financial situation and your opinions on various investing scenarios. After answering the questions, you will likely be assigned a risk-tolerance ranking, such as conservative, moderate, or aggressive. In addition, suggested asset allocations are often provided for consideration.

Is your asset allocation still on track?

Once you have assessed your current situation related to life changes, retirement income needs, and your risk tolerance, a good next step is to revisit your asset allocation.

Is your investment mix still appropriate?

Should you aim for a higher or lower percentage of aggressive investments, such as stocks?

For example, if you've determined that you will probably need to accumulate more than you originally estimated, you can strive for this new goal by increasing your contribution dollars, striving for a higher return, or both.

To strive for a higher return, you might consider investing a larger portion of your money in stocks. Alternatively, if you determined that you do indeed have a hard time sleeping at night when the stock market is volatile, you may want to consider investing a larger portion of your portfolio in less risky asset classes, such as bonds and cash.

Article courtesy of Forefield. Securities offered through NPB Financial Group, LLC. A Registered Investment Advisor/Broker-Dealer Member FINRA, MSRB, and SIPC

 
 

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