What Not to Overlook in Your Retirement Plan
Successfully putting all the pieces of your retirement plan together means monitoring a lot of moving parts over a long period of time.
Building and following a budget, no matter what your income level, is a big thing to retirement savers. Another big thing is establishing financial goals that make sense along with an investing strategy that helps you reach those goals.
Where many of us lose our way is with what may seem like little things; but it’s those little things that can kill either your budget or your overall financial strategy. Retirement planning isn’t a short-term endeavor, nor is it a simple process. Successfully putting all the pieces together means monitoring a lot of moving parts over a long period of time. And the more moving parts there are, the higher the chance some will fail.
Here are some important but often overlooked areas that should receive attention as part of your maintenance plans.
DON’T OVERLOOK INVESTMENTS THAT UNDERPERFORM.
If you are a devoted retirement saver, you’re off to a great start. Time is your friend, and because of compounding interest you’re likely to secure a much more stable retirement the earlier you start. But sometimes the peace of mind that comes with starting early can make us complacent.
Instead, look at your statements regularly to make sure they are performing as expected.
This is where working with an advisor can be beneficial, because you want to look not just at how your investments are performing but at how they are performing relative to other similar investments. If you have some clunkers, consider other vehicles that may perform better. Remember: the sooner, the better.
DON’T OVERLOOK THE IMPORTANCE OF A CONTINGENCY FUND.
Do you remember yourself ever saying, “If only (insert calamity here) hadn’t happened, my budget and/or retirement plan would be back on track!” You know what would come in handy when things go south? A contingency fund for those things you thought would never happen.
Instead, expect the unexpected.
You know that something is going to come up because something always does. If you don’t have a contingency fund in place or some amount budgeted each year for those unexpected expenses, they could easily derail your financial plan. Let’s make sure that doesn’t happen!
DON’T OVERLOOK COMMISSIONS, FEES, AND PENALTIES.
Unless you’re making hundreds of trades each year and going crazy with multiple variable annuity products, chances are the amount of money you spend each year on broker’s commissions or transaction fees doesn’t seem high. Nevertheless, when you’re thinking long-term, you begin to realize that over the course of your retirement investments those fees are going to add up. Because of compounding interest, the loss of income from those costs will be magnified over time.
Instead, know exactly what you’re paying for.
What is the industry standard for that fee? How frequently will you be charged? Make sure any advisors you work with spell out very clearly what you’re paying and why. Don’t forget to always factor in expenses and fees—and any possible penalties—when selecting an investment vehicle, as well.