Retirement review: Reevaluating your savings strategy
It's likely that your financial situation has changed since you first started saving for retirement. You may have had children, gotten a promotion, or started caring for an aging parent.
So it’s important that as your life and career progress, your retirement savings strategy does, too.
Schedule regular reviews.
Michelle Fuller, vice president and benefit advisor for BancorpSouth in Hattiesburg, Mississippi, suggests sitting down yearly, if not twice a year, to evaluate your income and expenses. Doing so allows you to cut unnecessary costs and allocate extra income to important financial goals.
Invest more as your career progresses.
Though each person’s needs are unique, you may need to save at least 10% of your salary, plus employer contributions, over the course of your career to maintain your current lifestyle in retirement (assuming you’ll need around 85% of your pre-retirement income to do so). And as your career advances, you should be able to contribute more.
Fuller advises using a layering strategy by contributing to several retirement funds. "It's a good idea to contribute a portion of your pay as both pre-tax and after-tax for your retirement fund, to give you flexibility," she says.
Protect yourself from the unexpected.
In your 30s and 40s, disability insurance is fairly inexpensive and can be highly beneficial—think of it as insurance for your income. If you become too sick or hurt to work, disability insurance will make up a portion of your income to offset the loss of your regular paycheck.
"The great thing about it is that you can find conversion policies that can be changed into long-term care insurance," Fuller says. If your current disability policy doesn't convert, consider reviewing your insurance to see whether this option benefits you.
Don't stop saving.
If your emergency fund adds up to the suggested 6 months to 1 year of expenses, don't quit now. Set your own goal and index it, Fuller says.
"Your goal could be to put away 10% this year and then save 12% the following year, continuing to increase your savings each year," she says. If you have children, consider establishing or increasing your contributions to a college fund.
Boost your net worth.
Diversifying your investments can be a key to growing your net worth. Review your investment option selections, and speak with a financial professional to discuss other options.
"In your younger years, you can generally weather the ups and downs of the stock market much more," Fuller says. "As you approach retirement, you should generally be pulling back."
For a better picture of where you stand, review your net worth at least annually, or as significant events occur.