Sponsored

Money & Policy

5 Ways to Adjust Your Retirement Planning Annually

The key: focus on the long term, not the short term


Who isn’t thinking about their retirement accounts these days? It’s been a whipsaw of a ride for 401(k)s, Individual Retirement Accounts (IRAs) and other retirement funds lately. Stock and bond markets have been wild due to the coronavirus’ impact on the global economy. My advice: Don’t overreact, but do use this as a time for an annual assessment of your retirement planning.

Markets go up and down, and if you’re in your 50s or 60s, you still likely have years ahead of working and earning an income. So, the market swings shouldn’t cause you great alarm (though they’re no fun).

I get the anxiety. It’s tempting to make swift changes to your portfolio in turbulent times. But hold your horses. It’s best to instead intentionally and pragmatically adjust your retirement planning as part of an annual routine. That way, you’ll stay focused on the long game.

Reading your Social Security statement can prompt you about how much you need to save for retirement and help you begin figuring out when to start claiming Social Security benefits. 

5 Tips for an Annual Retirement Planning Checkup

Here are my five recommendations for an annual retirement-planning checkup:

1. Rebalance your retirement accounts. Financial advisers generally suggest rebalancing (that is, adjusting the mix of your stocks and bonds) whenever your portfolio gets more than 7 to 10% away from your original asset allocation matching your risk tolerance and goals.

One rule many financial planners use for determining what percentage of your portfolio should be in stocks: subtract your age from 110. So, a 60-year-old would have 50% in stocks and the rest in bonds and cash.

Taking a look under the hood once a year (not every time the market swings) is a technique that generally keeps your portfolio on course, so it doesn’t get weighted down in one sector. The aim is to always spread your investments across a range of asset classes, from large companies and dividend-paying stocks to emerging-growth firms to global stocks and bond-fund indexes.

2. Get estimates of your future Social Security and pension benefits. Go to Social Security’s website, SSA.gov, to open your “my Social Security” account, if you haven’t already. (If you already have an account there — good for you!) Use the calculator on the site to help estimate your future Social Security benefits and to see a record of your lifetime earnings history.

Reading your Social Security statement can prompt you about how much you need to save for retirement and help you begin figuring out when to start claiming Social Security benefits. 

If you work for an employer that offers a pension plan, or have in the past, check with a human resources person there to determine the status of your benefit and any vesting, or payout, rules. You’ll likely be able to learn how much your pension benefit would be if you started taking it at various ages.

And if you’re still working at the employer that will provide a pension, see if it offers phased retirement — which could let you gradually reduce your work hours — and what effect taking it would have on your pension benefit.

3. Assess when, how and if you plan to retire. Many of us want to keep working beyond a traditional retirement age for the mental engagement as well as the money. You might be thinking of retiring from a primary career and launching an encore one or even starting a business.

Once a year, think through your plans.

The added income from working longer can relieve financial anxiety about outliving your money. After all, the more earning years you have to build savings in a retirement plan like a 401(k) or an IRA, the better off you’ll be down the road.

Your monthly Social Security benefit may grow, too. You could have more earning years for the formula calculating how much you’ll receive. And delaying when you start claiming Social Security increases the benefit 8% a year from your Full Retirement Age until age 70. Plus, working longer lets you delay tapping retirement funds, which can continue to grow, and help pay for health insurance.

Some excellent books that can help you get started pondering what you might want to pivot to for bonus working years: The Encore Career Handbook, Second Act Careers, Purpose and a Paycheck and (shameless plug for one of mine) Great Jobs for Everyone 50+.

4. Create, or update, a retirement spending budget and a retirement income plan. Estimating your annual retirement expenses and matching those against money you expect will be coming in is worth penciling out sooner rather than later.

For the expenses side of the ledger, write down your current recurring fixed expenses, such as your mortgage or rent payment, health insurance premiums, utilities and so forth. Then increase for inflation any that could rise by the time you retire. This exercise will provide a retirement spending guide, although some of the expenses may drop if you’ll relocate or when you enroll in Medicare at 65 or pay off a mortgage.

Some new expenses will crop up in retirement, though. For example, travel outlays, gifts for grandchildren, lifetime-learning tuition and spending on hobbies. So add in ballpark figures for these or other costs you expect to incur.

Then, for the income side, make a list of how much you expect to receive (and when) from: pensions, employer-sponsored retirement-savings plan and tax-deferred retirement accounts, as well as from Social Security and investments outside retirement plans.

5. Pay down debts. Finally, if possible, use your annual retirement-planning review to reduce or eliminate high-interest credit card payments, college loans and auto loans.

Debt can be a real dream killer in retirement. So, the earlier you start to get a grip on this, the more you’ll be able to enjoy retirement.

Kerry Hannon
By Kerry Hannon
Kerry Hannon is the author of Great Pajama Jobs: Your Complete Guide to Working From Home. She has covered personal finance, retirement and careers for The New York Times, Forbes, Money, U.S. News & World Report and USA Today, among others. She is the author of more than a dozen books including Never Too Old to Get Rich: The Entrepreneur's Guide to Starting a Business Mid-Life, Money Confidence: Really Smart Financial Moves for Newly Single Women and What's Next? Finding Your Passion and Your Dream Job in Your Forties, Fifties and Beyond. Her website is kerryhannon.com. Follow her on Twitter @kerryhannon.

Next Avenue Editors Also Recommend:

Next Avenue brings you stories that are inspiring and change lives. We know that because we hear it from our readers every single day. One reader says,

"Every time I read a post, I feel like I'm able to take a single, clear lesson away from it, which is why I think it's so great."

Your generous donation will help us continue to bring you the information you care about. Every dollar donated allows us to remain a free and accessible public service. What story will you help make possible?

Sponsored

Sponsored

Sponsored