Realizing that you won't be able to retire when you'd originally planned can be a tough pill to swallow. You're trying to come to terms with how this will affect your goals, and you also have to figure out how to make changes to your retirement savings strategy to stay on track.
It's easy to overlook your existing investments in the shuffle and focus instead on how much you need to save going forward. But that could be a costly mistake.
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Why ignoring your old investments could prove costly
You probably chose your old investments based on your old retirement date, but they may no longer suit you anymore. For example, if you chose a target date fund for your retirement year and now plan to retire a few years later, your original target date fund might be too conservative for you. Or if you're being forced to retire sooner than you planned, your portfolio may carry too much risk.
Leaning too far in either direction can cause problems. Investing too conservatively can slow the growth of your nest egg, forcing you to contribute more of your own money going forward to meet your savings goals. Investing too aggressively could put you at risk of large losses on the verge of retirement, just when you need to conserve your savings the most.
Taking a little time to ensure that your investments match your current risk tolerance is key to avoiding these issues. And it doesn't have to be a long, complicated process.
How to update your investment choices to match your new retirement date
If you're invested in a target date fund -- one with the year you plan to retire listed in the name of the fund -- your easiest option might be to choose another target date fund that matches your new retirement year. These funds automatically adjust their investments to become more conservative over time so that you don't have to do this work yourself.
Since target date funds list the year of expected retirement in the name of the fund, it usually isn't too difficult to work out which ones to focus on when comparing options. But that doesn't mean all target date funds are the same.
All target date funds have their own investments and fees. Some of these funds can be pretty expensive, especially when compared to index funds. If you're trying to keep costs down, investing at least a portion of your savings in index funds could suit you better. These are bundles of stocks you purchase as a package that track a well-known market index, like the S&P 500 (^GSPC 0.06%).
If you go this route, consider investing about 110 minus your age in stocks. For example, if you're 50, that would be 60% in stocks. Put the remaining 40% in bonds. This helps protect the savings you have while still leaving plenty of room for your investments to grow.
Look at all your retirement accounts to see the bigger picture
Don't forget to look at old 401(k)s and IRAs too. You may want to condense the number of retirement accounts you have by rolling some of your savings into an IRA or your current 401(k). This makes it easier to see what you have and how your money is invested.
You don't have to do this all at once. You can start by reviewing your current investments one day. Then, decide whether you want to transfer some of your funds to another account a second day, and change your investments on a third day. Just don't wait too long to get started.
