The beginning of the year is a time when people evaluate their lives to see if they’re where they want to be with their careers, health and money. As you receive your year-end account statements, it is a good idea to revisit your investment strategy, set new goals and check in on your retirement plan.
Consider Your Risk Tolerance and Time Horizon
This is the first question to ask yourself when planning for retirement. Are you comfortable with the level of risk you’re taking in your retirement portfolio? The general rule of thumb is the longer your time horizon, the more investment risk you can afford to take. However, there is always an exception to every rule.
Although past performance is not an indication of potential future returns, looking at how your portfolio fluctuated in 2017 can help determine if you’re comfortable with the level of risk being taken. Last year was an anomaly in terms of the low amount of volatility the U.S. stock market exhibited. However, volatility will no doubt return to our markets; it’s just a matter of when.
Increase Retirement Contributions
When it comes to saving for retirement, the more you can save, the better. The beginning of the calendar year is a perfect time to revisit your budget and determine if you can afford to increase the amount you contribute to your retirement accounts.
Increasing your contributions may allow you to retire earlier than planned. It might also allow you to spend at a higher level during retirement. This could mean two yearly trips to Hawaii instead of one. Use this retirement calculator, or one like it, to see how long your nest egg will last and how much your investments could grow over the years.
Set a Date and Review Income Sources
Setting a target date is a big part of checking in on your retirement plan. The question to ask is, "Will my current and future savings allow me to retire on my targeted date with the income I want?" If the answer is no, your goals may need to be adjusted. (For related reading, see: Are You on Track to Hit Your Desired Net Worth by Retirement?)
Another major component of creating a retirement plan is determining where your retirement income will come from. The truth is, not all of your income during retirement will need to come from personal savings.
There are additional sources that will bolster your retirement income such as government assistance in the form of Social Security benefits, as well as contributions from employer savings plans. If you’re not yet contributing to a company savings plan, talk to your employer and ask if the option is available. Very often employers match employee contributions and this helps your retirement savings grow.
It's important to include retirement planning in your list of New Year’s resolutions every year. Checking in on the health of your complete financial plan is an important step in making sure you are on track to accomplish all of your money goals. (For related reading, see: 5 Steps to a Retirement Plan.)