How to Review Your Retirement Account
Dan Nastou, CFA
Investing is a great way to grow your money. And dedicated retirement accounts offer a good way to do it. They provide a tax benefit, and if you’re fortunate enough to have a plan through your employer, like a 401(k) or 403(b), they may even match a portion of your contributions.
Once you set up your account and contribution schedule, you’ll want to mostly leave your investments alone to let them grow. However, you should still review your account time to time, especially if you haven’t done so yet. Here we’ll cover how to do it.
Note: If you’re just starting out looking to set up a 401(k), 403(b), or IRA, we can help you with that too. In this guide we’re talking about reviewing an existing account.
Step 1. Sign into your account
Okay, this step probably seems obvious, but just signing into your account is half the battle.
If your account is through your job, like a 401(k) or 403(b), then your employer should have provided the info explaining how to sign in. Chances are it will be accessible through a website or digital portal, along with your other benefits. If you need help, check with your manager or someone in HR. They get asked this stuff all the time.
If your account is not through your job, like an IRA, then go to your provider’s website and log in. And if you have multiple accounts, select your retirement account.
Whether you have a workplace plan or your own (or possibly both), each provider will have a slightly set up. So spend some time exploring what they offer.
Step 2. Check your account balance
Once you’re logged in, you should see where it says something like “account balance” or “holdings.” This will tell you how much you currently have in your account.
When you do check the balance, most of us fall into one of two camps.
1) Your balance is less than what you hoped. That’s okay. We’ve all been there. Don’t get discouraged with where you stand today. Instead focus your energy on where you want to be and take deliberate, actionable steps to get there. Good things take time and we’re here to help.
2) You’re pleasantly surprised with your balance. That’s great! Keep up the good work and consider pushing yourself even more if you can. And if you’re tapped out on retirement plan contributions, you can also set up a more general investing account.
In terms of how often you should check your account, there’s a fine line between just enough and too much. At any given time, you’ll want to know generally where your finances stand. So it’s a good idea to revisit somewhat regularly, say once a month or once a quarter.
But checking too frequently probably isn’t ideal. That’s because your balance will naturally fluctuate with the ups and downs of the market. And watching those swings too closely isn’t always great for your mental health. Remember, this money is for retirement, so you won’t be spending it for a long time. Maintaining a long-term mindset is key.
Step 3. Review your portfolio holdings
Once you’ve checked your total balance, you’ll also want to review your specific investment holdings. While there’s no single “perfect” portfolio, your investment selection can have a meaningful impact on your account’s performance over time.
There are a couple different approaches for managing your portfolio.
Default selections and target date funds (the hands-off approach)
If you have a plan through your employer, and you didn’t actively select your investments, there’s a good chance your money will be invested in the plan default. This is usually a target date fund or lifecycle fund, or something similar with a slightly different name.
These funds typically manage your portfolio based on your age – heavier weight to stocks when you’re younger, shifting more towards bonds as you approach retirement age.
The benefit of these products is the simplicity. The downside is they tend to charge higher fees, which can add up to serious money over time. They aren’t inherently good or bad, it just depends on your preferences. But it’s important to know what you’re getting and what you’re paying for it.
Selecting your own investments – you can do this!
If you’re feeling up for it, you can create more customization, and probably lower your fees, by selecting your own investments. This might seems intimidating, but it doesn’t need to be. For most people, a fairly simple portfolio of a few funds can do the job.
If you want to learn more about investing, you can start here for an overview, or you can sign up for our full course on personal finance where we cover investing in more detail.
We won’t get into all the details here, but a few things to consider for selecting your investments;
– Build a balanced portfolio: Select funds that are appropriate for your risk tolerance – Usually this means more stocks when you’re younger for growing your portfolio and more bonds as you approach retirement for stability.
– Pay attention to fees: Don’t get stuck overpaying for your investments. Look at what they charge, typically represented by the expense ratio, which is the annual fee you pay shown as a percentage of your assets.
– Rebalance if/when necessary: Your investments likely won’t grow in perfect lockstep. So if your target allocation (investment mix) gets too far out of whack, you may need to rebalance your portfolio to get it back in line.
Again, if you want more investing help, check out our Investing Cheat Sheet to get started.
Step 4. Consider upping your contribution amount
In addition to selecting which investments you want to hold, you can also adjust how much of your paycheck to contribute to your account. Some employers have a default contribution amount, so it’s possible you’re already contributing even if you didn’t initially opt in. But often these defaults are relatively low, so you may want to increase it.
How much is the right amount?
Obviously the more you can contribute now, the faster your savings will accumulate. And if your employer offers a matching program, it’s almost always a good idea to contribute enough to get the full match (at a minimum).
The match is basically free money, as long as you plan on sticking around long enough for their contributions to fully vest. Your employer should share a vesting schedule, which tells you how long it takes for their contributions to vest.
If you don’t have a matching program, that’s okay too. Dedicated retirement accounts offer a tax-advantage, so it’s still a good idea to contribute what you can.
The one “downside” of these accounts however, is that your money will be tied up until you reach retirement age (which is kind of the point). If you want to access your funds earlier, you’ll need to pay the taxes due along with a penalty. So if you’re planning on spending the money sooner, these accounts aren’t the place to keep it. You’d want that money in a saving account or a more general investment account like a brokerage account or robo-advisor.
And of course you can have multiple accounts for multiple goals.
Step 5. Review your other benefits
Since you’re already checking in with your retirement account, it’s a good opportunity to look into any other employer benefits you may have. This could include, health insurance, a Health Savings Account, employee stock option plans, or various other workplace benefits.
For some of these other benefits, you may need to wait for an open enrollment period to make changes to some of these. So mark your calendar and stay on top of it.
Also, you may need to spend a little time on general upkeep of your benefits – like updating your personal information or naming beneficiaries. Some portals and accounts will flag items that need your attention. So stay on top of your account maintenance.
Key Takeaway
Retirement plans offer a great way to invest your money. You’ll want to regularly check in to see how you’re doing and make any necessary adjustments. But the real benefit happens when you sit back and let those investments compound year after year.
As always, this is intended to be educational, not investment advice. Talk to your financial professional if you need help or are thinking about making changes to your investments.
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