Why You’re Off Track for Your Retirement (And What to Do About It)

by Jason on December 10, 2009

Perhaps you’re sitting there scratching your head, wondering what happened to your plans!

Whatever grand allusions you had for retirement – whether it was spending more time with family, more time volunteering or simply more time seeing the wonders of the world  – maybe you find yourself thinking “I may never be able to retire.”

Here are five reasons why you’re off track for your retirement goal and what to do about it.

Market Tank

The 2008-09 recession wiped out many a 401k  and along with that many retirement dreams were dashed!  We’ve had a great recovery so far and many people have gotten back some of their losses.

However, not everyone has the luxury of waiting around for the market to recover fully.

What to do:

Consider postponing retirement and/or reducing your lifestyle.  You may need to cut back the dreams of traveling every three months or getting that second home in Florida.

Also, re-evaluate your risk tolerance and time frame and consider making some changes to your portfolios.  If you find you have a longer time frame, you may be able to afford a bit more risk to make up some losses.

You Lack Specific Retirement Goals

Is retirement just a grand dream that has no plan of action around it?  You know the old cheesy saying:

Aim for nothing and you’ll hit it every time

There’s some truth to that.  Those who have a plan, review it regularly – making changes as needed – are more likely to reach their goals!

What to do

Take some time and write down what it is you’d like to accomplish.  If you’re married, I highly suggest getting on the same page with your spouse.

Write down things like:

Compare where you’re at with where you’d like to be at retirement and consider a course of action to help get you there.

You Make Emotional Decisions

“Markets are down – SELL!”,  “Markets are up – BUY!”, “I want a new 50″ TV – BUY IT”

Are you like a yo-yo when it comes to financial decisions.  This is a sure way to get off track for your retirement goals!  Emotional investing and decision making doesn’t work and will lead to some pretty bad choices.

What to do

If you change direction like the wind consider developing a plan you are comfortable with in good times and in bad.  Consider your risks, your goals and your temperment and get a plan and stick to it only making tweaks as needed.

You Don’t Know When to Sell

This can relate to emotions, but on a broader scale it’s fairly easy to know when to buy an investment.  Most people can identify a deal.  Last March when stocks were half off, there were a lot of deals to be had.

The tougher part is knowing when to sell.   Since March, markets are up some 60% – knowing when to sell is hard.  Why? Because we all want to think a rising investment will continue and we don’t want to sell early and have the stock take off

We’d rather hang on too long than give up some growth even though we might be up some 30%!  Perhaps it speaks to our greed.

What to do

Rebalance your accounts regularly.  Rebalancing simply means getting back to your original asset allocation model by selling investments that are high and buying investments that are low.

In other words if you start with a 50% stock; 50% bond portfolio and through market growth you are at 60% stock; 40% bonds – sell 10% of your stocks and reinvest into bonds.

There’s a lot of debate at how often you should do this, but I suggest at least annually and if you’re able to perhaps check the percentages quarterly to see how far from your originals you are.

You Don’t Know How Much You Need for Retirement

This was referenced above, but deserves it’s own point.  It seems like many people have no idea how much they need for retirement!  Many people assume they need a million dollars or some other really high amount and therefore they think “I’ll never be able to get there”.

What to do

Retirement is up to you!  Not the government, not your company – it’s up to you.  Therefore it’s vitally important to sit down and figure out what you want to do, how much it will cost and figure out how much you’ll need for retirement.

Don’t just take these broad “You need 70% of your pre-retirement” figures you find in some financial magazine as truth!

Everyone is different – therefore your goals are different than mine.  Make a personalized plan to figure out what you need.

How about you?

What else would you add to the list – what else have you found helpful in your retirement planning?

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