There are plenty of things you can set and forget: your latest slow cooker recipe, your automatic gym membership payment and your favorite road trip playlist. But there’s one thing you probably shouldn’t put into this category: your retirement accounts. Many of us set up our retirement account when we start a new job — and then never look at it again. But keeping regular tabs on what is going on with your investments is crucial to ensuring they still line up with your goals.
“We all begrudgingly go to the dentist and the doctor once per year, so take yourself for a financial checkup once a year as well,” says Morgan Simon, author of Real Impact: The New Economics of Social Change and co-founder of Candide Group, a registered investment adviser. When your next financial checkup rolls around, here are some changes you can (and probably should) make to your 401(k) or IRA.
1. Up your contributions
As you advance in your career and earn more, you should consider boosting the amount you put into retirement accounts like your 401(k), as it can have a snowball effect and lead to a heftier account in the future, according to Chris Schaefer, head of the retirement plan practice at MV Financial. “Over time as [your] income grows, you might think about adjusting your contributions,” he says. As you near retirement (when you’re 50 or over), you may also want to take advantage of a “catch up” contribution (under which the IRS allows you to stash additional money — $6,000 in 2018) into your retirement accounts. “It’s a great opportunity to do more,” Schaefer says.
It’s recommended to raise your contribution rate by at least 1% every year.
Meanwhile, something that investors may be surprised to learn is that you can enroll in an auto-escalation plan for your 401(k), which will increase that contribution automatically, according to Rich Heineman, Mint spokesperson. “It’s recommended to raise your contribution rate by at least 1% every year, and since a lot of people have a ‘set it and forget it’ mentality with their 401(k), the auto-escalation plan is an easy way to make sure you’re contributing as much as you should without much extra effort,” he says.
2. Change your allocations
In addition to deciding how much is going into your investment accounts, you have to decide where that money is going — whether you’re saving to buy a home or just tied the knot. “[About once a year] take a look at what the investment mix is and how it matches up with your needs,” he says. You may opt to stick with a target-based fund, an investment fund based on your projected retirement date that generally gets more conservative as you age, or a risk-based portfolio, which is based on the specific risk appetite you have at the time. (With a risk-based portfolio, you’d have to change your allocation to another fund when you want a more aggressive or conservative investment approach.)
If you’re considering making a change, Schaefer says, reach out to a representative at the organization where your account is held and discuss whether a switch makes sense for your particular circumstances. Typically, fees aren’t associated with changing your allocation to another investment vehicle, but talk it over with your rep to be sure.
3. Switch to socially responsible investing
Want to make sure that your money is doing some good while it’s being invested? Then you might want to consider socially responsible investing, which ensures that your financial strategy is lined up with your values. “The good news is that whatever your social values are there’s a product for it,” says Simon. There are funds that screen for gender equality or environmental responsibility, among other social issues, she says.
If you have a retirement account through your employer, you likely already have socially responsible investing options available to you through your plan. If not, you can ask those who handle the company’s benefits about how an option can be added. “The main point is that it’s still your money,” Simon says. “The onus should be on the financial professional who is accountable to you ... and you can always change your advisor if they’re not willing to educate themselves and do what you want.”
4. Update your beneficiaries
If you’ve been at your job for quite a while, you might have completely forgotten who you’ve designated as your beneficiary (the person entitled to what’s in your account if something happens to you). “Those don’t change as much [as other things], but it’s good to look at them after major life events,” says Schaefer. These include engagements, marriages, the birth of a child and of course, breakups or divorces.
5. Roll over your old accounts
Have you switched jobs every few years? Then you’ve probably collected much more than a bunch of LinkedIn connections. You’ve likely ended up with quite a few retirement accounts that you may want to consider combining in the name of efficiency. “I’m a big believer in simplicity,” says Schaefer. “Every time you switch jobs, you want to reassess whether you should consolidate.” Some things to consider: whether a better investment vehicle option is only available via an old job’s plan, or if one employer has agreed to pay fees on behalf of account holders. These factors will help you weigh whether it makes fiscal sense to roll over your existing accounts into one.
6. Use technology to your advantage
If you’re itching for more options than a 401(k), 403(b) or IRA, then you might want to take a bit of investing into your own hands ... literally. Apps like Acorns or Stash allow you to invest your spare change in less time than it takes to watch an episode of reality TV. “These allow people to feel the type of control that really encourages people to save more but also gives them something they have ownership over,” says Carrie Kerpen, CEO of Likeable Media and author of Work It: Secrets for Success from the Boldest Women in Business. She says these are investment options that should be done in addition to, not in place of, traditional retirement accounts, like a 401(k) with a company match. “A good investment strategy is built on a variety of diversified options,” she says.
Meanwhile, robo advisers, which help take the place of a traditional financial adviser, can also help you chart out an investment strategy. Typically a robo adviser asks you questions about your life, income and goals, and picks investments for you via an algorithm. Just one more option to consider as you get closer to your retirement party.