401(k) Strategy for Your 60s: Gradually Reduce Risk

Laurie Orr, 61, works for a musical instrument company in New York City. She has been enrolled in the 401(k) since she began the job two years ago. Orr recently rejiggered her allocation for more growth, moving half of her savings out of Franklin Templeton Conservative Allocation Fund (roughly 40% in stocks and the rest in bonds and cash) and into BlackRock Global Fund, a flexible fund that invests 60% in U.S. and foreign stocks and the rest in bonds and other asset classes.

Orr defers 11% of her salary—a bump of one percentage point over last year—and gets a 4% company match. "I've never had a match before. This is the best 401(k) I've ever been in," she says. Despite increasing her deferral rate, she has yet to max out her contribution (the limit is $23,000 in 2013, including a $5,500 catch-up amount for people 50 and older).

Orr accumulated money in several other 401(k)s at previous jobs, which she rolled into an IRA, but “I'm not where I could be," she says. "I need to do more." She reviews her account infrequently and has not calculated a specific savings goal. For now, her plan is to stash as much as she can in the 401(k) account for as long as she can. "If I can keep it going for a few more years, that will help."

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The advice: Orr is on the right track, says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards. She'll want to keep a healthy allocation in growth investments to hedge against inflation. But she needs to adjust the investment risk downward as she nears her retirement date. By the time she retires, the mix should be closer to 60% in fixed-income investments, such as high-quality corporate bonds, and 40% in U.S. and international stock-index funds.

Blayney says Orr should also articulate a specific goal and be willing to work longer to achieve it rather than take on more risk.

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