While it is important to consistently re-examine the asset allocation across your investments, do not abandon stocks altogether when you reach retirement. Additionally, do not automatically move your entire stock portfolio to cash or low-paying certificates of deposit in reaction to a drop in the value of your portfolio. Even in your retirement years, you need exposure to stocks for growth. In fact, if you are too conservative, you may outlive your money. That said, my recommended allocations by age are:
30s and younger: 100 percent stocks
40s: 80 percent stocks and 20 percent bonds
50s: 75 percent stocks and 25 percent bonds
60s: 70 percent percent stocks and 30 percent bonds
70s and older: 50 percent stocks and 50 percent bonds
This is the identical asset allocation I have suggested over the years on "Good Morning America." I do not believe the allocation should shift because of recent market volatility. While I am biased toward stock investments, I have always counseled diversification across different types of stocks, which helps to mitigate risk. To that end, make sure you are not overweighted in company stock and that your equity diversification is comprised of a variety of mutual funds instead of individual securities.
And What If You Are Not Ready to Retire?
Extend your retirement: Putting off retirement not only means more earned dollars and additional time for your investments to grow, but can also result in a higher value of benefits received. For example, a 65-year-old who opts to delay their Social Security benefits until age 70, will receive $300 more a month -- a 6 percent increase in benefits.
Catch-up: Americans over the age of 50 can take advantage of "catch-up provisions" for their retirement. Through 2005, individuals age 50 and older may contribute up to an additional $500 to their IRAs per year, increasing to $1,000 in 2006. This additional allocation can add up nicely and make for a larger nest egg for your retirement years. For example, if an investor "catches up" with $500 more a year for 15 years (assuming an 8 percent annual return) they would have $15,000 more than an investor who did not take advantage of the catch-up provision.
Reverse your mortgage: One prescription for seniors in need of extra money is a reverse mortgage. Reverse mortgages let you tap into home equity and repay the loan with proceeds from the eventual sale of the property -- often at death. The greatest appeal of a reverse mortgage is that you can be guaranteed a source of monthly income for as long as you need it, even if you live beyond your life expectancy. For example, the money can be used to pay for costly long-term care insurance premiums, home health care services or domestic help. Currently, about 13.2 million households could qualify for an average of $72,128 apiece in reverse-mortgage loans. The total of the loan must be paid back when the last surviving borrower dies, sells the home or permanently moves away. In most cases, in order to qualify for a reverse mortgage, you must be at least 62 years of age.
Key facts about reverse mortgages:
1. The home must be the primary residence for the borrower and generally, only single family, one-unit dwellings are eligible.