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5 Reasons you Should Review your Retirement Plan Every Year

One of the most challenging aspects of retirement planning is anticipating your future life. There are so many unknowns to consider, such as what age you'll want to retire, what your financial obligations will be, and what type of lifestyle you'll want.

Given those variables, it may be tempting to create a generic retirement plan and then consider it done. However, in order to ensure you stay on track, it makes sense to review your retirement plan on a yearly basis. Below are five reasons why an annual review is so important.

1. Life changes

A change in employment, income, or family makeup can significantly alter your finances and retirement planning. Reviewing how these changes affect your plan will help you avoid surprises down the road.

  • Changing a job: Whether you lost your job or are embarking on a new career, you'll need to address your retirement accounts. Explore whether to roll over your account from a previous employer to another brokerage firm or keep your funds where they are.
  • Getting a raise: Once the celebration is over, decide whether you'd like to use some of that bump in pay to increase your retirement investment rate.
  • Having a baby (or watching kids graduate): Kids have a big impact on finances at every age. Your ability to save for retirement may ebb and flow with the demands of your family life. Your annual review of retirement accounts is the perfect time to reflect on current and future financial obligations.
  • Divorce or death: These are very painful life events. But they happen. Planning for your future significantly changes when your partner is no longer with you. Such a life change may require a retirement plan overhaul.
  • Caregiving: Being a caregiver isn't just a physical act, it often has financial implications for you as well. Caregiving situations arise when you bring children into your life, when your spouse or parents need nursing care, or even when your friends require short- or long-term care. Explore how this situation will impact the vision of your retirement and your financial commitments.

There is no right or wrong way to deal with these life changes. But, it's important to engage in conversations that account for these changes as you manage your retirement funds.

2. Determining beneficiaries

As you accrue retirement assets, one sensitive area of planning is deciding who will be the beneficiaries of your estate. You may find yourself reassessing that from time to time based on life changes. If so, remember that there are several places where you may need to update this information:

  • Will
  • Investment funds such as your IRA and 401k
  • Home or property assets
  • Insurance policies
  • Family trust

There are many reasons why someone would need to update or change a previously designated beneficiary. Getting in the habit of regularly reviewing that information will keep your documentation consistent with your personal wishes.

3. Lifestyle choices

One of the most exciting and intriguing aspects of planning for retirement is dreaming of your future lifestyle. As a thirty-year-old, you may anticipate a retirement filled with international travel. But when you revisit the idea at age fifty, you might decide you'd rather save for a vacation home where you can make memories with grandkids. There are a few other reasons to review how you anticipate your personal life to go during retirement.

  • Changes to your health: are you in good health and plan to live in a place where you can have an active lifestyle? Or, have you experienced a change in your health that has affected how you imagine you will live your retired life?
  • Moving to a new location—perhaps you planned on becoming a snowbird in Arizona but have since decided you'd rather move abroad for part of the year. Will this lifestyle change increase or decrease your planned expenses?
  • Pursuing a new interest—do you have a new hobby that you would like to engage in once you're retired? For example, perhaps you would like to visit every baseball stadium in the U.S. Or you're interested in volunteering and serving a community that you're passionate about. Will these interests cost money to pursue, or can you enjoy them on your existing retirement budget?

Checking in once a year and examining how you would like to live your retired life also allows you the space to reimagine—and replan—your future.

4. Financial unpredictability

Planning financially for retirement is challenging. Some years it may feel like you're a little behind, and other years you might be confident you're on your way to a well-funded post-work life.

Taking the time to reevaluate where you stand financially may feel a little cumbersome, but it will help you avoid surprises later. Take the time to review the following questions once a year.

  • Are you maxing out your retirement accounts?
  • Do you have the opportunity to get a retirement match from your place of work? Even if you stay with the same job, your benefits can change from year to year.
  • What age do you intend to retire, and how much should you have saved by then based on your anticipated lifestyle?
  • What are the fees associated with the financial products that you're invested in? Will those fees eat up your retirement over time?
  • Have you reviewed your various insurance plans, and are you clear about the coverage?

5. Account access

In our increasingly digital world, we accumulate vast numbers of logins that we have to keep track of. To make sure you're never locked out of your retirement accounts, log in at least once a year (if not more often) and update the password credentials. Be sure to record the new information in a safe place or use a password manager. Regularly updating your passwords is also a good way to protect yourself from fraudulent activity.

Preparing for retirement is an ongoing process that lasts until you actually retire. That's a good thing. Your plans don't have to be set in stone and revisiting your strategy each year will ensure you make the most of your time and resources.

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