If something doesn’t seem right in your retirement savings strategy, the best time to figure out where improvements could be made is now. Catching pitfalls early can help you secure a comfortable retirement later. Here are some warning signs that something might be wrong with your retirement plan, as well as simple fixes to get back on track.
1. There’s no plan. If you have been sporadically saving or occasionally putting funds into a 401(k), it’s time to sit down and see exactly how much you have. “While there are more and less optimal ways to approach your retirement, any plan is better than no plan at all,” says Benjamin Sullivan, a certified financial planner with Palisades Hudson Financial Group in Austin, Texas. Start by talking to a financial advisor and your employer to learn about your options. You might find out you can put more in a 401(k) each year, or you may decide to put a specific portion of your paycheck each month in an individual retirement account.
2. Nothing is automated. If you look for extra cash to stash away at the end of the month after your other expenses have been paid, you could quickly fall short of your retirement goals. To turn the situation around, make savings an automated process that comes directly from your payroll or checking account each month. “Cultivate the habit of paying yourself first by deducting funds for your retirement account before any other expenses are deducted from your paycheck,” says Alexander Lowry, professor of finance at Gordon College. “You will find it easier to adjust to living on the balance of what’s left.”
3. All your money is in one investment. Diversity is key when it comes to retirement planning, and your portfolio should reflect that strategy. “With markets being volatile, it’s tempting to want to keep most of your retirement assets in conservative asset classes such as cash or certificates of deposit,” Lowry says. “But these products are likely to underperform the market and not keep up with the rate of inflation.” To create balance, aim for a portfolio allocation with a mix of stocks and bonds that reflects your risk tolerance.