A simple and easy answer to this question would be…..Maybe? Not only would that answer make this article extremely short, it wouldn’t explain some important items that participants should take into consideration when making decisions about their retirement plan.
Every time the calendar adds a year we get a sense of reset. A lot of the same tasks on the to do list get added each January and hopefully this article helps you focus on matters to consider regarding your retirement plan.
Should I Consult With The Advisor On My Plan?
At our firm we make an effort to meet with participants at least annually. Saving in company retirement plans is about longevity so many times the individual meetings are brief and no allocation changes are made. Even if this is the result, an overview of your account, at least annually, is a good way to keep retirement savings fresh in your mind and add a sense of comfort that you’re investing appropriately based on your time horizon and risk tolerance.
These individual meetings are also a good time to discuss other financial questions you may have. Your retirement plan is only a piece of your financial plan and we encourage participants to use the resources available to them. Often times these meetings start off as a simple account overview but turn into lengthy conversations about various financial decisions the participant has been weighing.
How Much Should I Be Contributing This Year?
This answer is not the same for everyone because, among other things, people have different retirement goals, financial situations, and time horizon. That being said, if the company has a match component in their plan, the first milestone would be to contribute enough to receive the most the company is willing to give you. For example, if the company will match 100% of your contributions up to 3% of pay, any amount you contribute less than 3% will leave you missing out on retirement savings the company is willing to provide you.
Again, the amount that should be saved is dependent on the individual but saving anywhere from 10% to 15% of your compensation is a good benchmark. In the previous example, if the company will match 3%, that means you would have to contribute 7% to achieve the lower end of that benchmark. This may seem like a difficult task so starting at an amount you are comfortable with and working your way to your ultimate goal is important.
Should You Be Making Allocation Changes?
The initial allocation you choose for your retirement account is important. Selecting the appropriate portfolio from the start based on your risk tolerance and time until retirement can satisfy your investment needs for a number of years. The chart below shows that over longer periods of time historical annual returns tend to be less volatile.
When you have over 10 years until retirement, reviewing the account at least annually is important as there are a number of reasons you would want to change your allocation. Lifestyle changes, different retirement goals, or specific investment performance to name a few. Participants tend to lose out on investment return when they try to time the market and are forced to sell low and buy high. This chart shows that even though there may be volatility in the short term, as long as you have time and an appropriate allocation from the start, you should see returns that will help you achieve your retirement goals.
Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally , professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, pleas feel free to join in on the discussion or contact me directly.