Personal Finance

The birds have flown, and the tuition bills have been paid. Retirement may still be a decade away, giving you plenty of time to plan and fund catch-up savings.

Take control of your retirement funds

Target-date funds make sense for younger investors, but by this stage you may want more control. Your personal risk tolerance and precise retirement date might have diverged from those of the target funds. Plus, with your nest egg probably in the six digits by now, you might not feel comfortable betting it all on one fund. The portfolio at right holds 65% of its assets in stocks, providing plenty of growth while beginning to dial down risk as retirement nears (as a target fund does). It also carves out a sliver of assets solely for dividend stocks so that it begins to tilt toward the income investments you’ll need in retirement. The bond segment of the portfolio is split between Metropolitan West Total Return Bond, a fairly conservative fund, and Pimco Income, which invests some of its assets in riskier parts of the bond market.

Boost your contributions

You may begin making catch-up contributions to retirement accounts in the year you turn 50. In 2017, you can stash an additional $6,000 in your 401(k), bringing your total contribution to a maximum of $24,000. And you may save an additional $1,000 in your Roth or traditional IRA, for a total of $6,500.

Simplify your accounts

You’ll likely want no more than one 401(k), one traditional IRA and one Roth IRA when you retire. “Consolidation almost always makes sense,” says Terry Dunne, of Millennium Trust, a custodian of employer-sponsored retirement accounts. “Too many people forget about their money in former employers’ plans.” You may be able to roll old 401(k)s into a new employer’s plan (many firms permit this). Compare your 401(k)’s fees and investment choices with those of your IRA to decide where to consolidate.

Trim your investing taxes

If your investments are spread across taxable accounts and tax-favored accounts, make sure you’re holding everything in the best place. Withdrawals from 401(k)s and traditional IRAs will be taxed as ordinary income in retirement. Generally, investments for which you’d pay higher taxes, including bonds and any stock funds that trade frequently, belong in your tax-advantaged accounts. Low-turnover stock funds, such as most broad index funds, and individual stocks held for the long term are best for taxable accounts because Uncle Sam taxes capital gains on stocks you’ve held for more than one year at 15% if your federal tax bracket is between 25% and 35%. Make sure your asset allocation for all your accounts lines up with your risk tolerance and time horizon.

Portfolio

45% Schwab Total Stock Market Index (SWTSX) or ETF alternative: Vanguard Total Stock Market (VTI)
15% Vanguard Total International Stock Index (VGTSX) or ETF alternative: Vanguard Total International Stock (VXUS)
5% T. Rowe Price Dividend Growth (PRDGX)
20% Metropolitan West Total Return Bond M (MWTRX)
15% Pimco Income D (PONDX)Pre-retirement