Seeing a retirement fund underperform can feel nerve-wracking, especially after years of saving and planning. No one wants to think about falling short of financial goals, whether retirement is on the horizon or still decades away. Addressing the issue sooner rather than later is crucial. Taking the right steps now could mean avoiding bigger problems down the road. The process of evaluating and improving performance doesn’t have to be overly complicated. By staying proactive and following clear, practical steps, there’s hope for turning things around and staying on track to meet your retirement goals.
Take a Close Look at Performance
Gathering all the necessary information is the first step. Review annual statements from your retirement accounts to see how your investments have performed compared to benchmarks. Benchmarks are industry standards that give an idea of how well similar funds are doing. iF your retirement account invests in large U.S. companies, compare its returns to the S&P 500 index.
Spotting underperformance requires attention to numbers over several years, not just one. A single bad year happens even in the best markets, but consistent underperformance over three or more years may indicate a bigger issue. Understanding this makes it easier to identify the areas that need attention.
Evaluate the Fees
High fees quietly drain retirement savings over time. Checking these costs is a necessary step to ensure you’re not overpaying. Look for expense ratios, which appear as a percentage and show how much money goes toward managing your investments. Comparing these ratios to similar funds can provide clarity.
Some mutual funds or retirement accounts charge extra fees for things like administrative services. Switching to lower-cost index funds or ETFs (exchange-traded funds) can reduce fees without sacrificing performance. Saving even 1% in fees could add thousands of dollars to your account over the long term.
Reassess Investment Choices
An outdated investment mix might contribute to poor performance. Adjusting your portfolio to match your risk tolerance, age, and goals ensures it stays on track. For those with 20 or more years left before retirement, a higher percentage of stocks might make sense since stocks tend to grow more over long periods.
Someone closer to retirement might benefit from shifting more to bonds or other stable investments. Rebalancing accounts periodically keeps the mix aligned with your financial objectives. A portfolio originally set at 70% stocks and 30% bonds might drift over time. Rebalancing puts things back in order by selling some investments while buying others.
Diversify Your Investments
Underperformance could result from putting too many eggs in one basket. Spreading money across different types of investments reduces the risk of losing a large chunk due to one bad-performing area. Diversification could include investing in domestic and international stocks, bonds, real estate, or even alternative assets like commodities.
Someone whose entire portfolio relies heavily on tech companies may face trouble during a tech slump. Diversifying into healthcare stocks, utilities, and bonds can reduce the impact of market swings. Balance matters more than betting on high rewards from one specific asset.
Consider Professional Advice
Seeking advice from a financial advisor could help uncover hidden problems in a retirement fund. These professionals analyze performance, compare fees, reevaluate asset allocation, and suggest adjustments tailored to personal goals. Goals vary widely, so having tailored advice can sometimes make all the difference for those nearing retirement or still building their nest egg.
Make sure to pick a fiduciary financial advisor who is legally required to act in your best interest, not their own. Understanding the fee structures of advisors helps you avoid surprises.
Maximize Contributions
Adding more money to retirement accounts allows you to take advantage of compound growth over time. Those still far from retirement might increase monthly contributions by even a small percentage, such as 1-3%. Small increments grow substantially over decades. Bumping contributions from 10% of income to 12% may not feel like a huge change today, but it leads to a much larger payoff later on.
Closer-to-retirement savers may benefit from catching up by contributing the maximum allowable amount. For individuals over 50, “catch-up contributions” allow extra deposits into retirement accounts beyond standard limits.
Check Employer Options
Contributing enough to qualify for an employer match is an easy way to boost savings. Skipping an employer match is like leaving free money on the table. Contributing only 3% of your salary when the employer matches up to 6% means you’re missing out on an extra 3% of your income going into savings.
Reviewing options in your employer-sponsored plan may also help. Some companies offer multiple investment selections within 401(k)s or other plans. Switching into better-performing funds inside the same account could improve returns without requiring major changes.
Delay Retirement, If Necessary
Staying in the workforce longer offers more time to save and grow funds. Even working for an additional year or two, whether full-time or part-time, can make a big impact on retirement savings. Earnings during these years help cover current expenses, so you don’t have to tap into your retirement accounts as early.
Delaying Social Security benefits increases the monthly payments you’ll receive when you start collecting. Waiting until age 70 to claim Social Security rather than starting at 62 could significantly raise monthly benefits. This is a particularly good tip in uncertain economic situations.
Explore Alternative Savings Accounts
Opening other types of retirement accounts might offer options that better align with your goals. A Roth IRA could be a good choice for someone who expects to be in a higher tax bracket in retirement. Contributions to a Roth IRA are taxed now, but withdrawals later are tax-free, which helps stretch retirement dollars further.
Health Savings Accounts (HSAs) can also provide extra savings while covering medical costs. For those eligible, HSAs offer tax-free contributions, growth, and withdrawals for qualified health expenses, making them another smart long-term savings tool.
Monitor Performance Yearly
Keeping an eye on account performance annually makes sure your retirement plan stays on track. During this time, you can check asset allocation, compare fund returns to benchmarks, and reevaluate diversification. Reflecting on your goals each year makes it easier to adjust as situations change. Life events, market shifts, or updates in personal priorities might require tweaks to how the portfolio is managed.
Many retirement accounts allow online access with tools that simplify tracking. Using these tools consistently helps you steer clear of surprises later on.
Stay Calm During Market Swings
Underperforming funds don’t always mean something is broken. Markets naturally go up and down, especially with investments like stocks. Reacting emotionally by selling under pressure often locks in losses and hurts long-term growth potential. Remember that retirement savings are for the long haul, not quick wins.
Focusing on long-term trends and goals keeps you grounded during rough market patches. Investment performance usually balances out over time, as long as your strategy stays solid
