How to Conduct a Retirement Fund Checkup: A Comprehensive Guide

Saving for retirement is a long-term goal that requires regular check-ins to ensure you’re on track. By periodically reviewing your nest egg, you can make necessary adjustments to set the stage for a comfortable retirement. The process doesn’t have to be complicated. Here are five simple steps to take when conducting your retirement fund checkup.

Clarify Your Savings Target

Estimating how much money you’ll need in retirement is the first step. According to the U.S. Bureau of Labor Statistics, the average household headed by someone 65 or older spent $52,141 annually on basic expenses in 2021. That works out to $4,345 per month. Other retirement savings approaches are based on your age. One rule of thumb is to save 15% of your income for retirement when you’re in your 20s and 30s, then bump it up to 20% in your 40s and beyond. Fidelity Investments offers these guidelines:

• By age 30: Have the equivalent of your current annual salary saved
• By age 40: Have three times your annual salary saved
• By age 50: Have six times your annual salary saved
• By age 60: Have eight times your annual salary saved
• By age 67: Have 10 times your annual salary saved

Your retirement lifestyle and goals can also affect your savings target. For example, you may need more if you’re drawn to retiring abroad or early retirement.

Assess Your Retirement Savings

Once you have a general idea of how much you’ll need in retirement, take stock of your current savings. This includes money you have in retirement accounts like a 401(k) or individual retirement account (IRA). You can also factor in cash savings (minus your emergency fund). Now consider how many years you have until you retire. Is your nest egg prepared to go the distance, assuming you continue saving at the same rate? If not, you might choose to increase your monthly contributions.

Bump Up Your Contributions

Contributions to your 401(k) are typically made through automatic payroll deductions, making it easy to set aside pretax dollars for retirement. You can choose your contribution amount, which is a percentage of your earnings that’s taken out of each paycheck. You’ll save even more if an employer match is on the table.

You can make IRA contributions on your own by transferring funds directly into your account. Folks who are 50 and older can use catch-up contributions to put more money into a 401(k) or IRA. If you’ve maxed out your retirement accounts, a brokerage account can also be used for retirement income.

Consider Your Tax Burden

Saving through multiple accounts can provide tax benefits today and in retirement. For example, you might split your contributions between a 401(k) and a Roth IRA to secure different tax perks. Here’s a snapshot of how retirement accounts are taxed:

• 401(k): Contributions are tax-deductible, which will reduce your taxable income today. You won’t owe taxes until you make withdrawals, but your tax liability could be significant if a 401(k) is your sole source of retirement income.
• Traditional IRA: Similar to a 401(k), the money you put into a traditional IRA is generally tax-deductible. You’ll also be taxed on distributions you take in retirement.
• Roth IRA: Contributions are not tax-deductible, but you’ll enjoy tax-free withdrawals in retirement. That can help offset your tax liability when you’re no longer working. Depending on your income needs, it could prevent you from being pushed into a higher tax bracket.

Rebalance if Necessary

Rebalancing your portfolio involves adjusting your holdings to align with your risk tolerance and goals. IRAs and 401(k)s are investment accounts that can hold various securities, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). These assets all carry different levels of risk, which is why diversification is so important.

The general rule is to assume more risk when you’re younger because you have more time to recover from periods of market volatility. As you age, you’ll probably want a more conservative approach. When reviewing your retirement accounts, check to see if your asset allocation still feels right. If not, rebalancing might be in order.

The Bottom Line

A retirement fund checkup allows you to assess your nest egg and savings strategy so you can adjust your approach as needed. Think of it as another form of financial maintenance. You probably check in with your budget and spending—your long-term goals need the same attention.

The same goes for your credit health. You can check your free credit score at any time with Experian and make adjustments to your habits to improve your credit score if necessary.

At O1ne Mortgage, we understand the importance of planning for a secure financial future. Whether you’re looking to refinance your home, secure a new mortgage, or need advice on managing your retirement savings, we’re here to help. Call us today at 213-732-3074 for any mortgage service needs. Our team of experts is ready to assist you in achieving your financial goals.