In this edition of the Financial News, I want to discuss a few key issues that individuals with retirement plans face, and pose 6 questions that need to be answered.

For many people, their retirement plan is the primary or exclusive investment vehicle, and sadly, many do not pay enough attention to their retirement plans.  With Defined Benefit Pension Plans on the decline, the primary source of retirement income for many individuals will be from a qualified retirement plan such as their 401(k).  With this in mind, it is critical that the individual clearly understands the key issues that must be monitored, controlled and reviewed.  Three of these issues are listed below:

1.  Investment selection.  One of the most important responsibilities is to maintain a selection of diversified investment options.  Many individuals are too heavily invested in one or two of the investment options such as the company stock or guaranteed fund option.  Lack of diversification can expose the investor to tremendous risks over the long term.  Having a well thought out investment policy for your retirement plan that compliments your age, risk tolerance, goals and other investments is vital.

2.  Adjustment of the investment mix as your age changes.  Once you have created an appropriate asset allocation (mix of cash, bonds and stocks) for your age and risk tolerance, adjusting that allocation over time is also important.  A 24 year old looking to grow their portfolio may have a different allocation than a 67 year old looking for income.  It is easy to forget about your plan and not review it on a regular basis, but this can be extremely dangerous.  Adjustments do need to be made and can be made easily without any tax implications since transfers within a retirement plan are not taxable.

3.  Rebalancing of your investment selections.  Different investments move in cycles of growth and decline.  A rebalancing program can help take advantage of these movements and maintain an appropriate balance within your retirement account.  Without rebalancing, certain holdings can become over weighted and expose your account to excessive risk.  Once again, making adjustments to rebalance your account is not a taxable event within a retirement account.

Below are a few key questions that will help you assess whether you are adequately addressing your retirement plan responsibilities:

1.  Have you had your retirement plan reviewed as part of your overall financial plan?

2.  Do you have an investment policy statement on file describing how you wish to invest your retirement plan and are you following it?

3.  Are you happy with the investment options and overall performance of your plan?

4.  Are you adjusting the allocation mix of your investments as you approach retirement?

5.  Are you rebalancing your portfolio on a regular basis to maintain this asset allocation?

6.  Are you receiving and reviewing ongoing communication about the plan?

If you are not able to answer these questions, then a review of your retirement plan could be invaluable.  Many sponsors of retirement plans provide support for their participants.  A financial advisor can also help you coordinate your specific retirement plan with your overall financial plan.  If you have questions, please contact me at 301 785-4112 or at pfish@sandyspringbank.com.