The Importance of Reviewing Your Retirement Plan Before the Year Ends

December is a time to reflect on the past twelve months, and to plan for the year ahead. Along with setting goals for the new year—why not take a moment to assess your retirement plans? From IRAs to 401(k)s, December is an excellent opportunity to review your accounts and develop a strategy to maximize retirement savings in the coming year.   

Step 1: List Your Retirement Accounts  

 The first step in any retirement plan review is to assess where your money lives. Many people have retirement funds across a number of accounts: including 401(k) funds managed by a current employer, 401(k) accounts from previous employers, or a personal IRA account. Some employees may also participate in a workplace pension scheme, or have access to a spouse’s benefits. List out all your retirement accounts or plans, noting how much money is in each and how your funds are being managed. 

Step 2: Use a Retirement Calculator 

There are a number of retirement calculators online to help you estimate how much money you should be setting aside each month, depending on when you want to retire and what kind of lifestyle you wish to lead post-retirement. While crunching the numbers, keep in mind that a retirement calculator operates based on estimates. Depending on factors like inflation, investment return and post-retirement expenses, your actual retirement budget and available funds could vary. Still: a retirement calculator is a great way to assess whether or not your current savings are on the right track.  

Step 3: Know Your Investments  

A retirement account isn’t an investment vehicle all by itself. Instead, a retirement account is a place where your funds and investments live. Therefore, it’s important to understand how the money in your retirement account is being invested. Most retirement advisors recommend a diverse portfolio of investments, with a lowering risk threshold as your target retirement date approaches. Check your workplace and personal retirement accounts to see what your investments look like at the moment, and get in touch with a financial professional if you’re concerned or unclear about your current returns.  

Step 4: Get More Matching Funds 

Some employers offer a 401(k) match, which means the workplace will contribute additional money to a worker’s retirement accounts, if the worker also contributes more. Many employees don’t take advantage of matching funds—which is basically free money from your boss!—due to current financial obligations. However: if you can afford to put a little extra money into your retirement account, then add matching funds on top, you’ll be in a far stronger financial position when retirement rolls around.  

Step 5: Take Advantage of Tax Incentives  

While it can be tough to prioritize retirement savings over saving for short-term goals like a car or vacation, keep in mind that saving for retirement offers tax advantages. If you haven’t yet opened an Individual Retirement Account (IRA), add this goal to your list of new year’s resolutions. A traditional IRA allows you to defer taxes on any money contributed to the account right now, while a Roth IRA lets you make withdrawals tax-free after retirement. Similarly, if you have a 401(k) account with a former employer, consider leaving that money where it is rather than withdrawing it as taxable income.  

Step 6: Budget to Contribute More 

 The best way to maximize your retirement savings is to contribute more money. An IRA allows contributions of up to $7,000 per year for people under 50 or $8,000 for people aged 50 and up. If you’ve already maxed out your IRA account, and you’re contributing as much as possible to a workplace retirement fund, you can still start a separate investment account earmarked for retirement. Many people work with a financial advisor to understand how best to invest their money. Typically, a target date fund is a smart strategy: set up to coincide with an investor’s planned retirement date, the fund automatically adjusts investment risk to generate returns while still protecting assets as much as possible. (Keep in mind that all investments carry some degree of risk).