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Is Your Retirement Plan Underperforming? How to Adjust It

Preparing for your retirement with an individual retirement account (IRA) or a workplace retirement plan such as a 401(k) is important in securing your financial wellness during your golden years. You might want to travel the world or engage in certain activities during your free time in retirement, all which cost money that you won’t be earning anymore.

However, while you may be saving money into your retirement plan diligently and hoping that the plan bears you huge fruits in the future, the plan may under perform and cost you thousands of dollars in retirement. Wouldn't it be really hurtful to find that you will receive $400,000 out of your retirement plan while you would have otherwise received $600,000? 

To avoid such a scenario, here are some tips on how you can tell if your retirement plan is underperforming and adjust it accordingly:

When Your Savings Fall Short

In most cases, many Americans are always behind on retirement savings. A study by the U.S. Government Accountability Office in 2015 showed that almost 50% of households headed by persons aged 55 and above had no retirement savings. Most Americans start to make retirement savings when it’s too late, making them fall short of what they require in 20 or 30 years to come. And even though there are options to help them catch up, they end up foregoing their dream retirement.

For example, if you realize that by age 65 you have saved up $100,000 and you intend to retire at 67, your savings may be short because they may not last you comfortably over a period of 25 to 30 years. The best way to adjust this is to consider opting for a later retirement date, say five years later, or work a part-time job during retirement to supplement your savings.

When Your Investments Are Not Performing as Desired

Investments can be a key component of having a healthy retirement savings. Furthermore, saving your retirement money in tax-advantage retirement accounts such as a 401(k) or IRA is a good idea so that your small savings can compound into large amounts over time. However, to get optimal gains from your savings, you must have a good portfolio that performs well over time. If your portfolio isn’t performing as desired, consider taking the necessary steps such as moving to a better managed fund, putting more money aside into savings each year, or working longer to boost your savings.

A good way to tell when your investments are underperforming is when the funds your 401(k) has been invested in aren’t mirroring the indexes. As a good rule of thumb, your investments and indexes should mirror one another, such as the S&P 500 and Russell 3000.

When Your Expenditure Rises as You Get Into Retirement

With a retirement plan, it's likely that you have budgeted for your golden days meticulously. You have everything outlined with various monthly and yearly expenditures estimated. However, if you realize that expenses are somehow rising as you approach retirement, you may want to adjust your retirement plan accordingly to avoid falling short.

For example, a situation where you are diagnosed with a chronic condition as you head into retirement may throw you back on your retirement plan. You may find yourself having to shell out more than $5,000 a year for treatment and medication, which may be an expense that your retirement budget cannot comfortably accommodate. 

Another example would be a re-assessment of your home as you near retirement, resulting in an increase of your property taxes say by $3,000 per year. When such situations arise, this can be an indication that your retirement may under perform into the future and therefore it's important to make adjustments.

All in all, an important factor to note about retirement planning is that it’s not all about saving and relaxing. You have to monitor how your retirement plan is performing both in the years prior to your retirement as well as during retirement. Monitor your savings, review your investments every now and then, and anticipate unexpected expenses in your retirement.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.