Conduct an Effective Retirement Checkup With 5 Easy Steps

1. Take Inventory

Get in the habit of performing an annual retirement checkup. By doing this review at the beginning of the year, you'll give yourself plenty of time to max out your contributions or minimize your withdrawals from your retirement plans.

Here are some items to assess each year:

• Your Retirement Budget: If you haven't created a retirement budget, now's a perfect time to make one. A smart retirement budget helps to estimate your income and expenses as they change from your working years into retirement. A budget will also help you figure out how much you'll need to save to enjoy the retirement you envision and help you make cost-of-living adjustments for near-term or future relocation and downsizing.
• Changes to Your Retirement Goals: Have your retirement plans changed at all? If they have, determine whether they'll affect your cost of living for retirement and if you'll need more, less, or the same amount of money you predicted before.
• Lifestyle Changes: Did the previous year put an unexpected dent in your retirement savings? Or did you have a financial windfall that accelerated your savings plan? Whether you welcomed a new child, had a family member move into your home, bought a new house, or paid off your mortgage, think about how life changes over the past year might impact your retirement.
• Your Retirement Assets: How much do you have saved across all of your retirement accounts? Are there any accounts from previous employers, such as a 401(k) plan, that you can rollover?
• Non-Retirement Savings: How much have you saved for retirement, outside of your retirement plans? Are your saving plans on track?

Your annual inventory will give you a picture of what you have so that you can figure out what you need.

2. Identify Shortfalls

With your inventory complete, it's time to take a look at your current saving strategy and see if any adjustments are needed. As you're checking up on your retirement accounts and saving goals, determine how much money you'll need to retire and use a retirement shortfall calculator to see if you're on track. If you find that you could be saving more — and you're already making use of an employer-sponsored retirement plan — consider opening up a Roth IRA or traditional IRA.

If you're nearing retirement or already in retirement and concerned about your savings lasting, you might want to consider an annuity. A retirement annuity could provide you the peace of mind you're looking for with guaranteed income payments over a certain number of years. You can also open an annuity if you're already in retirement (these are called immediate annuities) to stretch your savings. You can speak with an investment advisor to see if an annuity is a fit for your retirement income goals.

3. Max Out Savings

Are you making the maximum allowable contributions to all of your retirement accounts? Are you taking advantage of all tax reductions for items such as charitable contributions? Your annual retirement checkup will keep you from leaving money on the table. While it's easy to set and forget your retirement contributions, you should still check in twice a year.

For starters, your employer's plan might've changed since you first set your monthly contribution. Perhaps their match percentage changed or your income went up and you forgot to adjust your contribution. With personal retirement plans like IRAs, contribution limits go up once you reach 50. As of 2019, you're allowed an additional catch-up contribution of $1,000 per year on top of your regular contribution limit.

Don't forget that you have until the personal income tax filing deadline to make your IRA contribution for the previous tax year.

4. Rebalance

Speaking of setting and forgetting your retirement account contributions, the one thing you don't want to forget is portfolio rebalancing.

If you have an employer-sponsored plan like a 401(k), the plan might offer a rebalancing option wherein the custodian will periodically rebalance your accounts. If you haven't selected this option or if it isn't available, rebalance your portfolio — including your personal retirement accounts — twice a year. Rebalancing helps prevent your portfolio from being overinvested in any one sector and helps to manage long-term risk.

If you're on the verge of or already in retirement, your rebalancing strategy might be to shift to investments with an eye on capital preservation instead of growth. This could mean fewer stocks and a higher concentration of bonds and other low-volatility investments.

5. Round Out Your Strategy

The final step of your retirement checkup is to ensure your retirement portfolio has everything you need to feel secure. And this goes beyond your retirement savings.

Long-term care insurance, life insurance, and overall estate planning are all vital components of a sound retirement strategy. Take the time to review your insurance policies, beneficiaries, and premiums each year to ensure that you're adequately covered and that you're making adjustments for life's changes. Welcoming a new spouse, child, or grandchild into your family might necessitate an update to your beneficiaries. And buying a new home might lead you to increase your life insurance coverage to ensure that the house will be paid off after you pass away. You can always go back to your smart retirement budget as a touchstone to check your progress and make adjustments to your finances, even if you're already entered retirement.

An annual retirement checkup can help you keep an eye on the future while making adjustments to help you enjoy the retirement of your dreams. An effective checkup requires honesty about where you are and how much you can realistically save.