Annual Adjustments Could Wreck Your Retirement

You need to review your finances more than once a year.


The new year always comes with a healthy dose of literature about setting goals. Whether it's year-end tax tips, new year’s retirement resolutions, or simply a goal to lose weight this year, this good-intentioned advice often fails to help readers in a meaningful way. Here are five reasons why annual adjustments aren’t enough to build a solid retirement.

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The future can't be predicted. We do our best to base our goals for the year on what is achievable, but the bottom line is that we will never know what the future holds. Sometimes we set our savings goals too high for the year and we can't find the motivation to save more because the target seems unreachable. Other times, we are so far ahead that complacency sets in. Either way, we aren't really maximizing our ability to build a financial future.

The more you think about retirement, the more ideas will come to you. Set smaller and shorter goals, meet them, and then set new ones. This way, you are better able to account for your ever-changing situation. As you think more often about your retirement, you will also naturally spend more time reading and learning about it, giving you additional insights into how you can best reach your dream.

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Events happen all 12 months of the year that can derail your plans. Congress may change tax rates and this can certainly change your ability to meet your financial goals. They can also take away tax breaks that you were counting on. If you only adjust once a year, it’s difficult to efficiently deal with all the changes that can happen during the year.

A year is too long to go without reviewing your situation. Inevitably, you will go off track every once in a while. A review, even a brief one, will help you stay on track to meet your goals, which is ultimately what you want.

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It's much easier to take small steps continuously than to make one huge step once a year. Let's say you ultimately want to save $10,000 one year from now. Doesn't that sound like a tough milestone to reach? But what if you break it down into smaller goals? Saving $10,000 means tucking away about $385 per paycheck for those who are paid every two weeks. This instantly sounds a bit more achievable. Break the same amount down to a daily goal and that becomes $27.40, which seems even more reachable. We need to save consistently to meet our long term goal, and saving $27.40 each day feels a bit easier than saving $10,000 for most of us.

David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.