Staying on Track

What changes might affect your plan?

Life happens to everyone, and it’s difficult to know which of the following will affect you.

While it’s impossible to know for sure which changes you’ll encounter, preparing for the financial aspects of these events can help to reduce the accompanying stress.

Preparing for Major Financial EventsPreparing for Your Financial Life Changes

Are you moving toward your goals?

At this stage, your finances may be more complicated than when you started. As your circumstances change, you may need to refine your plan.

• Organize your savings. If you’ve had more than one job, you probably have more than one retirement account, such as a 401(k) or 403(b). Now’s the time to roll over those old accounts into a self-directed IRA. You’ll potentially pay lower fees and have access to a wider range of low-cost investment options.
  Learn more about rollover IRAs.

• Consider your tax situation. Once you retire, you may find yourself in a lower tax bracket. Traditional IRAs and Roth IRAs offer different advantages, and it’s important to carefully consider the tax implications of each.
  Get a side-by-side comparison of Traditional vs. Roth IRAs.

  Traditional vs. Roth IRA

• Check your asset allocation. Asset allocation involves dividing your investment portfolio among different asset categories (CDs, annuities, stocks, bonds, cash). Generally speaking, the closer you get to retirement age, the more you may want to consider rebalancing your mix to better reflect your attitude toward risk.

  Asset Allocation

• Avoid early withdrawals. Certain circumstances, such as disability, first-time home purchase, or education costs, may warrant an early withdrawal from your IRA. As a rule, it’s almost always inadvisable to borrow from your 401(k) or 403(b) plan. Time will work against you, and if your financial situation worsens, you could lose even more money. Before you consider early withdrawal or borrowing, explore other avenues of obtaining the funds.

Risk vs. Reward

All investments involve some degree of risk. Your reward for taking on risk—such as investments in stocks—is the potential for a greater return on your investment.

Time Horizon

One of the most important risk tolerance factors is your time horizon—the number of years you’ll be investing to achieve a certain goal.

If you’re several decades away from retirement, for example, you may be more comfortable with riskier investments. You’ll be able to wait out downturns in the market and capitalize on its long-term upside.

By contrast, if you’re nearing retirement or saving for a shorter term goal such as a child’s education, your time horizon is shorter—and your tolerance for risk decreases accordingly. Bonds or cash equivalents are popular choices among more risk-averse investors.
Learn more about your investment options.