Reviewing Your Retirement Contributions: Why, When, and What to Adjust

Putting money away for retirement on autopilot is a smart move, but that doesn’t mean you should set it and forget it. To arrive at your destination safely with your financial security intact, you will need to make adjustments along the way, course correct as needed, and keep your eye on the horizon as you navigate your journey to retirement. In other words, you should be reviewing your retirement contributions regularly.

An employer’s 401(k) plan is the main retirement account most people have, and once new hires get automatically enrolled, they allow a portion of their paycheck to get deposited each time into an investment portfolio they barely even reviewed and never look at it again. Other than following a few color-coded guidelines related to age, you may have put little thought into how your investments are allocated.

The upside of automated retirement plan enrollment and contribution is that it encourages everyone to save for retirement by making it easy and automatic. The downside is it can be so automatic that we forget to check in periodically to ensure we’re doing everything we can to maximize our retirement savings opportunities.

Why Review Your Retirement Contributions

If you have not reviewed your retirement accounts lately, it’s time to take a closer look. You may think everything is fine, but if you are not reviewing, evaluating, and adjusting your contributions regularly, you might not be on track to reach your goals within the timeframe you have ahead of you.

As you get older, your time horizon changes and risk tolerance typically decreases. With the mounting responsibilities and life changes that occur between your mid-30s and 50, many people lose sight of the shifting horizon and pay little attention to the distribution of investments in their accounts. As retirement starts to close in, you will want to consider gradually moving the majority of your assets out of high-risk stocks into something more stable.

Over time, your financial situation may change too, warranting significant adjustments. For some people, this means a higher income, a growing family, and increasing expenses. For others, it means divorce, job loss, or a financial crisis. Whether positive or negative, chances are that your financial circumstances will change over time and your retirement contributions should be reviewed and adjusted accordingly.

When to Review Your Retirement Contributions

Everyone should be making periodic tweaks to investment portfolios along the road to retirement. It should be a regular and routine part of your financial practice, as clockwork as paying your bills and reviewing your household budget.

If you’ve left your retirement plans on cruise control for years, it’s time to tap the brakes, turn off cruise control for a moment and program a plan checkup into your navigation system.

While it’s true that a hands-off approach has delivered strong stock market returns over the past decade and past performance can be a helpful guide, retiring comfortably means making sure your financial plan is up-to-date along the way. You should be reviewing your account quarterly or at least annually, as well as during times of market volatility, and at any point you experience a significant life change.

Retirement contribution limits are set by the IRS and can change each year, so check with the IRS annually to make sure you have the most accurate information on the maximum amount you can contribute to your retirement accounts.

What Adjustments to Make

Keeping an eye on your retirement contributions does not mean actively trading, panic selling during market downturns, or making major changes without doing your research. Remember, the idea is to focus on the long term and ensure you are doing what you can to improve the odds of reaching your retirement goals as planned.

Increase Your Contributions

It might be time to boost your contributions. Many people start off contributing the minimum amount, but as your income increases and you become more financially stable, you may want to consider gradually raising and eventually maxing out your contribution rate. Keep in mind, when you consider tax breaks, the true cost of your contribution may be far less than you think.

Rebalance Your Asset Mix

You may also want to adjust your asset mix. Generally, younger investors can tolerate more risk and have time to weather potential market dips. For those nearing retirement, on the other hand, dips in the market serve as a more significant setback that could potentially derail their retirement plans. So if you’re carrying a high percentage of equities because you set up your asset allocation when you started your job a decade ago, it might be time to do some rebalancing.

Catch Up

It could be time to play catch up. Once you reach age 50, you can set aside additional catch-up contributions. The IRS allows people nearing retirement to contribute more than the regular annual contribution limit to their 401(k) or IRA accounts. Presuming your income grows as your career advances, the purpose of permitting catch-up contributions to give you an opportunity to make up for lost time in leaner years. If you are 50 or older, this is another adjustment to consider making.

Don’t Sell Yourself Short

Retirement contributions are designed to be automatic and easy to help keep you saving for your future, but that doesn’t mean you should “set it and forget it.” Your income, expenses, and financial situation change greatly over the course of your earning years. Additionally, market conditions can change, and IRS limits on contributions may go up. The only way to know if you are on track for reaching your retirement goals is to review your contributions regularly and make adjustments that align with your current circumstances and vision for the future.

If you are anxious about your progress, the best thing you can do to ease your worries is to become familiar with where you really stand. Don’t sell yourself short by leaving your financial future up to chance; take an active role in shaping your retirement plan.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.