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Retirement Plan Checkup: Staying on Track

Just like your car needs regular check-ups to keep running smoothly, your retirement plan requires periodic assessments to ensure it’s on track to reach your desired destination – a stress-free, financially fit retirement. Life happens, and our financial circumstances can change unexpectedly, so regular retirement plan check-ups can help you identify potential roadblocks and make adjustments to stay on track – or get back on it! 

1. Determine Where You Are

Presumably, you’ve already determined a ballpark savings amount you’ll need for a comfortable retirement. If you haven’t, here are some very general guidelines: 

  • By age 30: 1x your annual salary
  • By age 40: 3x your annual salary
  • By age 50: 6x your annual salary
  • By age 60: 8x your annual salary

So, if you’re 50 years old and only have five times your annual salary, you may not be meeting your retirement savings goals. Naturally, what you need for retirement will differ from what others may need. If you don’t plan on having many expenses, perhaps you’ll only need 7x your salary at age 60. However, if you plan on living a more extravagant lifestyle, 8x your salary at age 60 may not come close to cutting it. 

Defining your needs early on in your investing career is important. If you determine what you’ll need only at age 50 and realize you’re far short of meeting your goals, it could be too late.

Also, you may have different benchmarks for your different accounts based on varying timelines. For example, an IRA you plan on drawing down between your retirement age and your Required Minimum Distribution age may need a different amount at age 60 than your Roth account, which you plan on utilizing only in your 80s. 

Source: SSA.gov

2. Determine Why You’re Off Track

You’ve counted it all up and realize you’re off track. So, what’s causing you to not reach your financial checkpoints, assuming they were realistic and achievable to begin with? Here are some common reasons: 

A. Your Assets Aren’t Performing Well Enough

Unfortunately, you may eventually figure out that the assets in your portfolio simply aren’t performing as you’d hoped. That’s always the risk of investing. If you’ve come to that conclusion, offloading underperforming assets and purchasing new ones may make sense. In any case, your equity assets should at least keep up with the S&P 500, which isn’t difficult to do with an ETF that tracks it, such as State Street’s SPY ETF. 

B. Your Portfolio is Unbalanced

One key pillar of long-term investing is regular portfolio rebalancing. If, for example, your portfolio has become bond-heavy at an early age, you won’t have the growth potential necessary to reach your goals. 

Alternatively, you may discover that you’ve overshot your goals with a portfolio that is too growth-oriented. Of course, that’s great if you’re reaching your checkpoints early. Still, an equity-heavy portfolio at a later age may be placing your retirement at risk if a market downturn were to disproportionately impact your stock-heavy portfolio. 

Quarterly or annual rebalances will help you maintain the asset allocation necessary to achieve the growth you require while adhering to your risk appetite. It will also help you consistently buy low and sell high, improving your overall investment performance. 

C. Your Investment and Tax Plans aren’t Aligned

A tax-savvy investment plan can significantly improve your chances of a successful retirement. If you don’t consider taxes with every purchase or sale you make, you’re likely to experience inferior results. 

Opening a tax-advantaged retirement account, such as an IRA or 401(k), is one of the most important and easiest steps you can take. Doing so allows you to start working tax deductions into your plan or prepare for tax-free withdrawals via Roth contributions. This will help you manage your taxes more efficiently now and throughout retirement. Having multiple accounts with varying tax statuses will enable you to manage your taxes more efficiently now and throughout retirement.  

Another reason your investment and tax plans may not align is due to tax-inefficient investments, such as holding high-yield bonds or certain mutual funds in taxable accounts. Again, if you have multiple accounts, you can purchase the assets you need within the accounts where it makes most sense from a tax perspective. 

 Finally, are you harvesting your losses? Tax-loss harvesting is the strategic offloading of investments for a capital loss to offset capital gains elsewhere in your portfolio, helping you to offset your losses with a smaller tax bill. 

D. You’re Not Seeing the Whole Picture

Can you imagine losing a hundred thousand dollars and not realizing it? Well, one issue with retirement accounts is that it is easy to forget about them, especially 401(K)s that aren’t rolled over to a new employer’s plan or to a personal IRA. In fact, in May 2023, there were 29.2 million unclaimed retirement accounts worth a jaw-dropping $1.65 trillion.

So, even though it’s hard to imagine, you may simply have forgotten about that 401(K) and its assets that you should include in your savings calculations.

3. GET BACK ON TRACK

You realize that you’re off track, and you’ve pinpointed those areas you seem to be lacking in. How exactly do you get back on track, then? Well, if you’re not saving enough, you can cut back on spending and allocate more of your salary to your savings. If one reason is a lack of a tax-savvy investment plan, things get complicated quickly, and you may need to sit down with a financial advisor and CPA to determine the most efficient path for your savings. 

Unfortunately, if you’re too far off track, you may be forced to reevaluate your goals and prepare yourself for a more humble retirement than expected. However, if you have been consistently aiming high and hitting your goals sooner than expected, you may experience an improved lifestyle right away!

4. Reevaluate More Often

You can’t know where to go if you don’t know where you are, right? At a minimum, you should be sitting down with your financial advisor once a year to review any changes in your life or goals, see where you are, and make adjustments before any speedbumps become mountains. Doing so more often, such as quarterly consultations, would be all the better. However, don’t check your balances too frequently and worry about every daily market change. The daily, monthly, and even yearly fluctuations don’t count for much when our aim is decades of long-term growth. 

Also, schedule a check-up any time you achieve a significant milestone or experience a life-changing situation, such as a promotion, pregnancy, death, or an accident. Whether fortunate or tragic, these events may require significant changes to your financial plan.

Final Thoughts

Let’s go back to our car analogy. Imagine driving your car for 100,000 miles without a single check-up. Problems that would be minor fixes quickly grow into costly, timely repairs and, in some cases, could even be irreparable. 

Your retirement plan could face the same fate if you don’t sit down with a tax-focused financial advisor on a regular basis. Life happens, and our financial circumstances can change unexpectedly. Only regular check-ups can help you identify potential roadblocks and make necessary adjustments to keep your plan on course.

Please – give your retirement plan the attention it deserves. Your future self will thank you!

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For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. The scenario mentioned in this presentation is not an actual client experience. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this presentation.

About the Authors

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

  • Jose Joia

    Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.

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