There's a tendency to see your retirement plan as a static document -- a map that you follow throughout your working life leading you toward the finish line. But maps can become outdated, and so can your retirement plan. You have to update it periodically to ensure that it's still in alignment with your shifting goals, savings, and priorities. Here are five times you should review it and consider updates.
1. When you start a new job
With a new job comes a new retirement plan, new investment options, and possibly a new 401(k) match. All of these can affect how easy it is to save for retirement. A greater 401(k) match may reduce the amount you have to put away on your own, while higher fees could eat into your growth, forcing you to save even more to overcome this loss. Your new job may also have restrictions on when you're eligible to participate in the 401(k), and you might have to save on your own in an IRA during the interim.
Ask about your new employer's 401(k) and review your plan summary and the prospectus for your investments. Compare this against your old 401(k) and adjust your savings up or down as needed to hit your monthly goals.
You also have to think about your old 401(k). If you left the job before you were fully vested in the plan, you could lose some or all of your former employer's 401(k) match, forcing you to increase your savings at your new job to stay on course. You may also want to consider rolling your old 401(k) over into your new one or into an IRA. This makes it easier to keep track of your retirement savings, and it may help you save on fees, versus leaving your money in your old 401(k).
2. When you experience a major life event
Adding or losing a member of your family, experiencing a major health crisis, or buying a new home can affect how much you need to or are able to save. You might have to divert some of those funds toward new living expenses, requiring a whole new retirement plan.
You may have to delay retirement to give yourself extra time to save if you can't meet your monthly target. Or if you don't want to do that, consider slashing spending on discretionary purchases, like dining out, to free up more cash for retirement.
3. When you turn 50
Adults 50 and older are allowed to make catch-up contributions to their retirement accounts. These can be up to $25,000 to a 401(k) in 2019 and $7,000 to an IRA, compared with $19,000 and $6,000, respectively, for adults under 50. If you weren't able to start saving for retirement as early as you'd hoped, you can make up for it now. Consider increasing your retirement contributions if you have the extra cash, and be mindful of the changing contribution limits each year.
By 50, you're probably not too far off from retirement, so that's also a good time to make any necessary course corrections if you're way off your retirement goals. You might plan to work longer if you're not going to have enough saved, or reduce your planned spending in retirement so you'll have enough for basic living expenses.
4. When you're ready to retire
Before you exit the workforce for good, look over your plan again to make sure you've met your savings goals and that you're comfortable with your withdrawal strategy. Quitting your job without doing this could cause problems later if you realize you don't have enough money. If you're not on track, you may have to go without some things that are important to you or reenter the workforce until you can save enough.
5. Once a year
Ideally, you should look over your retirement plan annually. You may not have to make any changes, but if you do, it's easier to make these small adjustments once a year than it is to make larger adjustments as you near retirement and realize you don't have enough savings.
If you're not sure how much you need to save for retirement or how to make adjustments to your retirement plan to keep yourself on track, consider bringing in a financial adviser, who can help you identify your goals and figure out how much you must save in order to reach them. Just be sure to choose a fee-only financial adviser instead of a fee-based adviser who earns commissions, which can create a possible conflict of interest.
Your retirement plan needs to be as alive and dynamic as you are. Don't just assume you're on track. Do the math and verify it. Review your retirement plan when one of the above scenarios applies to you.