Retirement investment planning and reviews should be done every few years at a minimum, and during retirement, you should do it each year.
Before retirement, this planning involves deciding on how much risk you are comfortable with, as well as choosing specific investments.
If you are not interested in learning a lot about financial planning, it is a good idea to consult an expert.
However, the more savvy you are about finances, the better off you'll be.
If your employee benefits or 401K provider doesn't offer financial advice, it is in your best interest to consult a fee-only financial advisor at least every 5 or 10 years.
The few hundred dollars you will spend could give you many thousands in added returns over the years.
One way to diversify and select the recommended amount of risk for your age is to select target date funds. These funds are managed and adjusted based on the number of years before the target retirement date.
For example, a fund with a target retirement date of 2015 has a mix of investments with less risk than a fund targeted to 2020. These could be good choices for people with less knowledge and confidence for choosing between a list of unfamiliar fund names. Just pick a retirement year and select the fund that has a target closest to it.
Image source:tiaa-cref.org website
Image source: fidelity.com website
As you get closer to retirement, you should at least learn the basics of how to divide your investments into different asset classes for balancing risk. Usually your current financial institutions will offer newsletters or their website with articles on these topics. Start reading them, they're usually not very long.
If not, there are thousands of websites where you can learn as much as you want for free. Start with the websites of the top financial services providers (Fidelity, TIAA-CREF, Vanguard) or reliable experts such as Suze Orman as a starting point. Another option would be to include financial magazines or books in your reading materials now and then.
Another key to getting good returns on your investments is to consider the fees charged by the funds. When comparing two investments with similar attributes and track records, be sure to compare their fees and expenses as well.
Every year or so, you should rebalance your portfolio. This involves moving the money your investments earned back into the right percentages of the whole.
For example, if your high risk holdings made a lot of money, you want to keep it by moving it into more conservative investments for the long run. So if you started out with 50% stocks, 40% bonds, and 10% real estate, but end the year with 70% stocks, 20% bonds, and 10% real estate, you would move money around to get back to the original 50-40-10.
If you happen to be interested in real estate investing, you could include that in your retirement investment planning and arrange for the pay off date to coincide with your retirement date as an extra income stream. Just be sure to set aside an emergency fund for dealing with maintenance issues once you are retired. If not, it may be a good idea to sell any investment property before you retire to eliminate that risk.
At retirement, you will probably still need to keep your money invested to avoid using it up too quickly. It is even more important to pay attention to investment risk, expenses, and rebalancing. This is where your retirement “paycheck” will come from, so put in a little time to take care of it. (Read how I transitioned from work to early retirement and the process of starting withdrawals.)
As you prepare for retiring, your retirement investment planning should include setting up an emergency cash fund, such as a (relatively) high yield savings account or easily accessible fund within your 401K for unexpected needs such as an expensive car repair or replacing a large appliance.