Unfortunately, your finances are never really one of those things you can afford to “set it and leave it.” If you’re planning for retirement, you need to check your accounts regularly and assess how they’re doing. It’s a good idea to schedule this assessment annually when you can look at the year’s numbers and have better access to the big picture. You might find that you need to make a plan to save a little more each month, or you might realize that you’re being too aggressive. If you don’t know where to start with this annual inspection, here are the five essential things to consider.

Step 1: Get Social Security And Pension Benefits Estimates

Woman with stylish grey hair looks over paperwork while typing on a calculatorThe best place to start when assessing your retirement options is on the Social Security website, SSA.gov. If you don’t already have an account, it’s time to create one even if you’re not on the cusp of taking benefits. Once logged in, you can use their calculator tool to estimate your future Social Security benefits and see a lifetime earnings record. 

This step is the foundation of retirement planning; you can’t make any decisions without a good grasp of these numbers and what they mean. Your Social Security account will help you understand what you need to save for retirement and when you can start claiming your benefits.

If your employer offers a pension plan, it’s also a good idea to check with human resources to determine the status of your benefits and the rules regarding how they pay out. (Some pensions offer different amounts based on the age at which you start taking it.)

As these accounts will directly impact your retirement income and are, to some extent, variable, checking them annually is the least you can do.

Step 2: Answer the Hows, Ifs, and Whens

Once you’ve got the basic information regarding your Social Security and pension benefits, it’s time to think about how, if, and when you want to retire.

loose coins and phrases written on scrap paper like "have you saved enough" are scattered across a surface Many of us face the reality that we will need to work beyond the traditional retirement age — either because we need the added financial security or we desire the promise of mental and social engagement. It goes without saying that the longer you can build savings in a retirement plan like a 401(k) or an IRA — whether through your current employer or an encore career —  the better off you’ll be in the long run.

Another factor to consider in the “when” category is how you can benefit from delaying collecting your Social Security benefits. For every year you wait past Full Retirement Age to start taking Social Security payments, the benefit increases by 8% until the age of 70. That may seem like a tiny figure, but if you log back into your SSA account, you’ll see that it can make a big difference.

So, every year you need to weigh these numbers against how ready you are to retire. This is made more difficult by companies moving away from defined benefit pensions — which guarantee a certain amount of money per year — to defined contribution plans, which are more subject to market ups and downs.

Step 3: Create/Update Budget and Retirement Income Plan

Now that you know roughly how much money will come in after retirement, make a budget to figure out how much will be going out. You can estimate your annual retirement expenses by adding up current fixed expenses — your mortgage or rent, utilities, health insurance premiums, etc. To get a clear picture, add your best guess for costs like travel, spoiling grandchildren, and investing in your continuing education. When doing all of this, be sure to account for any increases due to inflation or other economic factors. Hopefully, this number will be less than your income when all is said and done. (If it isn’t, it’s time to go back to Step 2.)

Step 4: Pay Down Your Debts

Since you’ve got all the numbers in front of you while doing this annual retirement review, it’s a great time to look at your high-interest credit card payments, college or car loans, and any other debt that you could potentially reduce. Debts eat away at retirement benefits, so try to pay them down now if it is at all possible. We have some advice on how to do this here and here.

Step 5: Rebalance Your Retirement Accounts

a woman and a man discuss something while looking at papers and a laptopInvestment experts recommend that people rebalance their investment portfolio — stocks and bonds — every year to remain within a healthy ratio. Many financial planners determine the percentage of stocks in a portfolio by subtracting your age from 110. (For example, a 65-year-old should have 45% stocks and the rest in bonds and cash.) They then advise you to make any changes whenever your portfolio veers from this number by more than about 10%.

It’s always wise to keep a close eye on any investments you have. But it’s also good to know that every market experiences fluctuations, so you don’t need to panic whenever your ratio is a bit off. If you’ve invested wisely, you hopefully have a range of asset classes that will protect you when one sector goes haywire.

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