Although there are many questions to answer during the review process, below are the best three. The focus is on employer-sponsored plans, like 401(k) and 403(b).
How much do you currently have?
Now is the time to pull those statements out of their drawers and review the balances for all of your retirement accounts. Make sure to review accounts from your current and previous employers. Also, review the balances on your individual retirement accounts, such as traditional IRAs, Roth IRAs and IRA rollover accounts. Total all of the balances to see where you currently stand.
How much are you contributing?
Surprisingly, many people never change their contribution amounts from the start. Some employers allow you to contribute a flat dollar amount or a percentage, although percentages are most common. If your wages have increased over the years but the contribution has remained the same, your retirement account could be suffering. The following percentages are some annual age-based ideals for retirement savings: 7% in your 20s, 10% in your 30s, 15% in your 40s and 20% in your 50s.
The above amounts are targets, but you can contribute more if your budget allows. The 2014 maximum contribution limits are $17,500 for people under 50 and $23,000 for people over age 50. You’ll have to convert those dollar amounts to a percentage of your annual gross income to determine the percentage amount. It’s recommended that you increase your contribution annually until you reach your targeted contribution goal or maximum.
How are your investments performing?
To understand how your investments are performing, you’ll first need to know your risk tolerance and time horizon. (Most plan sponsors have an asset allocation suitability questionnaire located on their website where you can figure this out.) After you’ve determined your appropriate asset allocation strategy, review your investment portfolio to make sure it’s allocated properly (think aggressive, moderate, or conservative). Then, review the mutual funds in your account to determine if they’re still relevant. Are they out-performing other funds in their asset class? Are they keeping up with the market index? It’s not recommended that you make massive overhauls each year, but rebalancing and tweaking may be necessary. If it’s needed, make adjustments to your investments based on your risk tolerance and goals, not just performance alone.
Whether you’re completing the annual review yourself, with your plan’s representative or with a financial professional, periodic checkups will keep you on track to your retirement destination!
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