A blog post from the Wall Street Journal back in February noted that “the typical working household with a 401(k) approaching retirement had only $111,000 in a 401(k) and IRA.” There are plenty of articles floating around in the last couple of years lamenting how low retirement balances are. If $111,000 is right, that would be one of the higher averages published (obviously it is all in how the data is collected and who is surveyed but that is not the point of this post).
Someone who engages in markets enough to read blogs like this might be doing a little better than average but what does the person/couple who is 60 and has $200,000 or $250,000 in their 401k do? That is probably not a ruinous situation but $8000-$10,000 (assumes the 4% rule) on top of Social Security may not fund the retirement that the 50-year old version of this person had in mind.
There are two levels of discussion on this scenario: saving/investing and lifestyle.
In terms of saving/investing, for just about whatever retirement vehicle(s) you use, it has a catch-up provision for people who are 50 and older. For quite a few IRA accounts it’s $1000 and for 401ks it can be $6000. Using simple math, four or five years maxing out a 401k between the ages of 60 and 64/65 increases the $200,000-$250,000 by a meaningful amount and if the market does well in that stretch all the better. Putting more away will likely be a challenge but someway somehow, people who are under-saved will need to try to figure out a way to make it happen.
How that savings is invested is probably a little more complicated. Kicking back with a traditional 60/40 allocation may not be the best path, remember the context is under-saved and close to retirement.
There is visibility for very low interest rates to persist for a while. There is yield in certain segments of the bond market and while an allocation to these higher yielding segments makes sense, the more you have, the risk you are taking. While someone who is under-saved may want to consider increasing the exposure to relatively risky assets, too much poses the threat of losses or panic sales.
