A Smart Move: Do an Annual Review of Your Finances

Do you know if you’re making progress toward the retirement you want? Reviewing your financial situation yearly allows you to identify changes and make the necessary adjustments in time.

Whether your goals include saving for retirement, paying down debt, paying for your child's college education, or reducing your tax burden, a regular financial review allows you to identify and respond to changing circumstances and to plan accordingly for the year ahead.

The following are important planning areas to review.

Retirement Savings

Step 1:  Calculate (or recalculate) once a year your retirement savings goal. You will need to consider several variables: your anticipated expenses during retirement, your sources of income, the potential for inflation, and different withdrawal assumptions. You will have to factor in any recent changes to your lifestyle that could affect your retirement outlook.

Step 2: Do a careful assessment of whether you are setting sufficient money aside to reach your retirement goal. If you determine that you are falling short, consider ways you can add to the amount you are contributing. Even if you are unable to add more money to your retirement savings at this point, you should consider adding more when your circumstances change. However, focus on staying invested. While volatility in the stock market can be unnerving and may tempt you to sit on the sidelines, you should keep in mind that historically, the stock market has always recovered from downturns and delivered inflation-beating returns to long-term investors. Of course, past performance does not guarantee future results.

Boost Your Contribution Level 

Increasing the amount you contribute to your plan can make a positive difference in the amount of money you’ll have available at retirement. When you first joined your plan, you may have decided to contribute only a small amount. As time goes by, try to increase your contribution each year. It probably won’t be easy to save more when you have so many other demands on your money. A little bit more now, however, could have a significant impact on your retirement lifestyle.

See how you could accumulate more in your plan with an increase of less than $20 to your weekly contribution:

If you increase your contribution by:	You could have this much more saved after:
	5 years	10 years	20 years	40 years
$10/week	$3,102	$7,500	$22,573	$113,742
$15/week	$4,654	$11,251	$33,860	$170,613

This is a hypothetical example used for illustrative purposes only. It is not representative of any investment vehicle. It assumes an average annual total return of 7%, monthly contributions, and monthly compounding. Contribution amounts are rounded to the nearest dollar. Your investment results will be different. Past performance or this illustrated return does not guarantee future results. 

Investing strategically: what to consider

You'll want to ensure that your portfolio is adequately diversified among the major assets’ classes: stocks, bonds, and cash equivalents. While diversification does not protect against a loss in a declining market, it can help you manage your portfolio's risk exposure.

Any large change, up or down, in the investment markets can affect your portfolio's overall asset allocation. That's why it is important to rebalance your portfolio at least annually so that the percentages you have invested in stocks, bonds, and cash remain in line with your desired asset allocation. Keep in mind that asset allocation does not guarantee a profit or protect against loss. Also be aware that rebalancing a portfolio may create a taxable event if it's done outside of a retirement account.

Unfavorable changes in your financial situation, such as a job loss or large, unexpected expenses, may lessen your tolerance for investment risk. If that's the case, you may want to consider reducing your exposure to higher risk investments.

There may be other investment-related issues that concern you. For example, your current investments may not provide the income you need to meet your expenses. Or you might want to position your portfolio to keep pace with inflation.

 

Important Information and Legal Disclaimers

The information and general descriptions found in this article are designed to help you understand some of the factors you should generally consider when evaluating the appropriateness of any strategy or investment within your retirement plan. Any description included is for informational and educational purposes and for your independent consideration only; it should not be regarded or viewed as advice or as a recommendation to take (or refrain from taking) any particular action. By providing this information, we assume that you can evaluate this information and the general descriptions found here to exercise your independent judgment. Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting or tax advice services. If legal, accounting, or tax advice services are required, you should seek the services of a competent professional.

Investment products available in retirement plans are not insured by the FDIC, they are not deposits or obligations of, nor are they guaranteed by Banco Popular de Puerto Rico, its affiliates and/or subsidiaries; involve risks, may lose value, including the possible loss of the principal invested.

Because of the possibility of human or mechanical error by SS&C or its sources, neither SS&C nor its sources guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall SS&C be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

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