Sometimes, our finances get that way as well. When we stay on top of the budget, bills get paid timely and we have a sense of control over our money. When we get lax, it can be hard to become motivated to tackle the stack of papers that need attention. Another area that often gets neglected is our retirement asset allocation. Here's how it happens.
Let's say that Bob takes time with his financial planner and sets up an asset allocation for his retirement plan. Let's assume they come up with a mix of 60% equity mutual funds and 40% bond mutual funds based on the fact that Bob is somewhat conservative and has only ten years until retirement. Over time, Bob's equity values go up significantly more than the bond values. The values change even more as Bob continues to make new contributions and dividends and interest are reinvested. After five years and lots of market changes, Bob discovers he has a portfolio that looks more like a 76% in equities and 24% in bonds. Now, his retirement funds have changed from a moderate risk level to one that is more volatile than he is comfortable with, and he is quickly approaching retirement.
The way to correct this is to mow the lawn. On a regular basis, sit down and review your retirement plan asset allocation. If it is not where it should be, make the changes needed to put it back in line. Put yourself on at least an annual schedule to review your accounts. Generally, you will receive retirement information during annual benefits open enrollment, so this is a good time to review and see if there are different fund selections available and that you are making the most of your employer match. You could do it in January or on your birthday. Or twice a year when you change the batteries in your smoke detector. Mowing the grass of your retirement plan on a regular basis can help you create a green retirement.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides financial planning advice for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.