3 reasons you can not "set and forget" your retirement plan – The Fool Motley

The retreat is unpredictable. To make sure you have enough money for your entire life, you need a flexible and scalable plan. Here are three reasons why you should consider reassessing your retirement plan at least once a year or after experiencing a milestone event, such as a job change or a major health problem.

1. Your needs may change over time.

A serious health problem could derail your retirement plan. If it's a chronic illness, you can expect your medical bills to continue to increase in retirement. You can take this into account by increasing your monthly savings to cover your higher bills and adding a long-term care policy if needed. You can also reduce your planned spending on travel or other discretionary purchases.

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You can change your mind over time when it comes to travel or reducing the size of a home, which can also affect the amount of your savings for retirement. Living expenses can increase faster than expected, or you can get married or divorced. The only way to accurately plan the evolution of these expenses is to develop a new retirement plan with a new savings goal.

2. Your risk tolerance will change.

When you are young, you can afford to invest your retirement savings more in equities because your assets have enough time to recover if they suffer a loss before having to start taking advantage of them. But with the approach of retirement, your risk tolerance decreases because you do not have the same luxury of time. This usually means that you have to transfer more of your money from riskier, potentially more valuable shares to more stable investments, such as bonds.

You have to re-evaluate your wallet periodically and reallocate your money, if necessary, otherwise you could expose yourself to too much risk as you get older. If you do not know how to reallocate your funds properly, consider using a financial advisor who can suggest the best investments based on your needs and goals. Just make sure you choose a paid financial advisor only, not advisors who can earn commissions on some of their recommendations. This can create a conflict of interest.

Another option is to invest your money in a target date fund. These funds are designed for people planning to retire in a given year. the fund's assets become more cautious over time, so you do not have to worry about these changes.

3. Your investments may not grow as planned.

When you create a retirement plan, you include an estimate of how quickly your investments will grow. This is used to determine how much money you need to save each month to reach your goal. But your investments can grow faster or slower than expected, which affects the amount you need to save each month.

By re-executing the figures once a year, you can slightly change your savings rate to account for variable growth. Thus, you are not likely to over – save and find yourself without enough money in retirement.

When to update your retirement plan

Recalculate the amount you will need for retirement at least once a year. Use your current retirement savings as a starting point and update your estimated retirement expenses, if needed. The results may be the same as those in your previous plan, in which case you do not need to change anything. But if your monthly savings goal changes, adjust your budget accordingly. If you can not save as much as you need, save as much as possible and look for ways to increase your income or reduce your expenses to reach your target.

You should also re-evaluate your retirement plan after a major change in life, such as a marriage, divorce or loss of employment. These events can all have a significant impact on your savings or retirement needs.

Your retirement plan is fluid, not something you invent once and never see again. There is always a risk that you do not save enough, but by updating your plan periodically, you can reduce that risk and increase your chances of having a comfortable retirement.