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3 Steps To Conduct A Retirement Plan Check Up

percentageOne of the best strategies to have a good retirement is to constantly review your plans. Do not think that after creating your retirement plan you can leave it like that and it will guarantee enough funds for you. These plans span over a very long time (especially when you start early) and a lot of things can change.

Most of the retirement contributions are done through investments and the market can change a lot over the years. You want to make sure that your contributions are poised to earn as much interest or profit by putting it where it can grow the most. It is a constant periodic review that you must make and it will help you understand the whole game all the more.

Why do you need to review your retirement planning strategies

There are many reasons why you need to review your retirement planning strategies over time. Apart from keeping tabs in the market, you need to update your knowledge when it comes to maximizing the growth of your funds. There are just too many factors to consider that are constantly changing. You have the inflation rate and the consumer prices that continually rise. You also have to understand that your priorities change over time and that can affect your future needs. Illnesses can happen that may have to be funded when you retire. You need to consider all of these things to make sure that you will not fall short on your retirement fund.

One of the reasons why you need to conduct a periodic retirement is to understand how the whole retirement planning can benefit you. A 2013 study conducted by Charles Schwab revealed that a lot of consumers are confused about their retirement plan. According to this study, a lot of consumers know the importance of planning for retirement but not everyone are confident that they can manage it correctly. Among the other findings include:

  • 6 out of 10 respondents use the 401(k) as their largest retirement saving plan.

  • 9 out of 10 say that they rely on themselves to save up for retirement.

  • More than 50% increase their contributions in the past 2 years.

  • 74% believe that their 401(k) have recovered faster than expected.

  • 52% view their 401(k) as more confusing compared to health care benefits.

  • 46% do not know what investment option is best for their specific needs.

  • 34% feel stressed when they have to make decisions about their 401(k).

  • 61% of respondents believe that they will feel more confident if they get the help of a professional.

(Source: http://www.aboutschwab.com/images/press/schwab_401k_survey_infographic.pdf)

Obviously, the confidence of consumers when it comes to their retirement plan stems from the fact that they are confused. When you have no idea what you are doing, you will really feel at a loss and that will keep you from making good decisions about your retirement plan.

How to review your plans for retirement in 3 steps

So how do you review your plans for retirement? A good question to answer first is when should you check your plan? Well it actually depends on how much free time you have in your hands. The more often you can check it, the better it will be for you. But if you do not have the time, a yearly check up of your retirement plan should work just as well. This is a very important task to do during your pre retirement years.

The more frequent you check your plan, the more you will understand it. So how should you conduct your yearly check up?

Step 1: See how your retirement plan performed since your last check up.

Get all your statements and the investments from your portfolio and see how they have performed since your last check up. If you conduct your retirement check up at the end of the year, it will just be in time for the year-end statements that you get from the mail. When you total all your investments, the first thing that you need to check is this: how much is your total retirement fund. Compare that amount with your end target. How far have you come? How much percentage have you saved up? Is it enough for you?

Then, you need to check the growth of that fund. Was it as big as you expected? If not, you need to compare the growth of your investments with that of similar investments in the market. If bonds are part of your retirement plan, you need to compare it with the performance of other bonds. If it performed as much as the others in the market, then you are on the right track. You need to analyze if your money will grow further in this particular investment. Try not to be too obsessed over a few points below the average. But if it did not grow in the same way as your point of comparison, then you know that you should put your money elsewhere.

Step 2: Check the fees involved in your retirement fund.

In most cases, investments require a certain amount of fees. These can be with the money manager who takes care of your mutual funds. Or it could be the commissions charged by your broker. You want to weigh the profit that you earn against the money that you spend to achieve that growth. This is even true with your 401(k) contributions. You can check out the fees through your Human Resources. Make sure that you get as low as you can when it comes to the charges. If not, try shopping around if you can get a lower one. If there are things that you know you are already capable of doing, then you may want to forego the professional help that leaks out money from your funds.

Step 3: Make new retirement plans.

When you have finished the two steps, you need to decide on whether you will continue with the plan  without any changes or you will make some changes. Will you invest more in the baskets that currently hold your funds or will you transfer them?

Another thing that you need to look into is diversification. For sure, some of your investments have grown more than the others. For instance, if your stocks did very well in the past year, then it may be carrying a bigger percentage of your retirement fund. You may want to balance your portfolio by shifting funds or reinvesting in other investment options. It may be time to venture into new markets. The bottom line is, make sure your risk is balance well in your various investments.

According to an article in Wall Street Journal, a research suggest that buying more stocks than bonds may be the best way to prepare for your retirement. In the past, experts say that as you age, you may want to invest more money in bonds because they provide more security for your money. The study revealed that people who grew their stock investments over time are more likely to get ahead when it comes to the growth of their money.

Of course, all of these suggestions should be filtered depending on your investing personality. If you are the aggressive type and your funds can deal with high risk investments, you may want to follow the advice mentioned in the Wall Street Journal article. Think about all of these and give your retirement plan a makeover.

Here is a video from National Debt Relief that should help you rearrange your budget to coincide with the changes that you will make on your retirement plan.

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