Congratulations!
- You've begun saving for retirement through work and on your own.
- You've gotten help from your financial advisor.
- You've invested your retirement savings in a diversified portfolio that's appropriate for your years to retirement and your attitudes about market and inflation risk.
Now what? Are there things to do once you've taken these important steps?
Yes. To help stay on track toward the retirement you want,
Stick with your strategy
Once you and your financial advisor are happy with how your retirement savings are allocated among stock, bond, and cash funds, don't mess with the mix!
Retirement investing is about long-term results, not potential short-term success. So resist the temptation to change investments, even when:
- A stock fund you don't own does very well.
- Several of your friends mention how happy they are with a particular bond fund.
- A relative encourages you to get in on the ground floor of a terrific investment opportunity.
You will have spent time and effort deciding on the most appropriate investment strategy for your situation. Think of the time and effort as investments in your investments - and don't mess with the mix!
Over time, and if your overall circumstances change significantly, your advisor is likely to suggest modifying your strategy. If so, you'll be making changes based on your strategic goals, not a passing fancy.
Resist the temptation to tap your savings early
Both individual and employer-sponsored retirement savings plans provide for emergency or hardship withdrawals without penalty. In fact, this is one of the attractive features of these plans.
However, be sure you understand the long-term consequences of borrowing from a plan account. The minute money leaves your account,
- The total amount on which earnings are based is lower - so earnings are lower.
- You lose the opportunity to earn returns on investments that might do well during the period, however short, you're not invested.
- You pay back the interest with after-tax dollars.
- In many plans, contributions may be suspended for a period once a loan is taken.
- If you leave your job before the loan is repaid, the amount remaining is considered a distribution, not a loan.
If you don't fully repay the loan or roll over the amount, you could incur a 10% penalty plus income taxes on the amount not repaid.
Alternatives to borrowing from a plan account include taking out a home equity loan, borrowing from a family member, scaling back on expenses, or even taking on a second job for the period you need the extra money. And if you're thinking about taking money from retirement savings to fund a child's education, consider asking that child to participate in earning part of tuition, room, board, and/or expenses.
Consolidate your savings for simplicity
If you have a number of retirement savings accounts, managing them - and keeping your overall retirement portfolio on track - can be difficult and time consuming.
When you leave your employer, consider rolling over assets from your employer plan into a Rollover IRA.
Review your investments annually
Plan to meet with your financial advisor once a year to go over your retirement investments. If you marry, divorce, inherit a significant sum, or have other life changes, arrange an additional meeting to determine whether the change should affect your investment strategy.
One important part of your review is checking overall asset allocation. That's because markets, the economy, and other outside forces can strongly affect investment performance over the course of a year. If stocks have done particularly well, for example, the value of your stock fund holdings may now account for too large a percentage of your overall investment. Rebalancing your portfolio means moving money among investment types so your asset allocation strategy returns to where it should be.
If you need to rebalance, consult with your advisor as to how investments in Calvert funds might fill needs in your portfolio.
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