5 Ways to Transition Your Portfolio for Retirement

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  • Clint Thomas
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When it comes to choosing the appropriate age at which to retire, the magic number differs for everyone.

"Today people are working longer, so the old standard retirement age of 65 isn't always the case," says Donald Morgan, a financial advisor with Independent Wealth Connections in Spokane, Washington.

According to a 2015 Gallup Poll, 32 percent of workers said they planned to retire before age 65 while 37 percent said they'd still be working after their 65th birthday. By comparison, the average reported retirement age was 62 for 2014.

As you move closer to retirement in your late 50s or early 60s, it's a good time to review your portfolio to ensure that your assets will be enough to maintain your lifestyle. Focusing on these key areas can help make the shift from saving for retirement to spending in retirement a smooth one.

[See: 10 ETFs That Pay Sky-High Dividends.]

Strike the right balance between growth and income. When contemplating a move into more conservative investments pre-retirement, it's important to pay attention to the timing.

"One of the biggest mistakes investors make in their 50s is getting too conservative," says Clint Thomas, a certified financial planner and co-founder of Integrity Wealth Solutions in Greenwood Village, Colorado.

Thomas says investors often view their time horizon for investing in terms of their retirement date. The reality is that it they should be thinking of the bigger picture instead and factoring in how long they plan to live off their investments once they retire.

"If a portfolio needs to last 30 to 40 years, there needs to be some growth-oriented assets in the mix to make sure it keeps up with inflation so the investor doesn't run out of money," Thomas says.

Paul Jacobs, a certified financial planner and chief investment officer with Palisades Hudson Financial Group's Atlanta office, says investors run the risk of shortchanging their retirement assets by playing it too safe.

"Taking on too little risk can increase the odds of outliving your assets," Jacobs says, and investors need to understand the true cost of being overly cautious where stocks are concerned.

Consider your cash reserves. Beyond reviewing tax-advantaged accounts, 50- and 60-somethings need to take stock of their liquid assets.

"As a rule of thumb, investors should have six months' of living expenses saved to handle unforeseen expenses life sometimes hands us," says George Clough, vice president of wealth management strategies and People's United Wealth Management in Bridgeport, Connecticut.

Peter Maris, a certified financial planner and founder of Resource Financial Group in Wilmette, Illinois, says investors should think carefully about committing a substantial portion of their investment portfolio to cash.

"At today's interest rates, it makes little sense to hold cash beyond a three- to six-month emergency fund," Maris says.

For investors who prefer a larger cash position, he recommends keeping those funds in high yield FDIC-insured savings accounts, which may offer better interest rates than a traditional savings account.

Rebalance regularly. If you're worried about your investments straying too far off-course when retirement is approaching, rebalancing can keep your portfolio on track.

"The key to rebalancing your investment portfolio is remembering that the primary goal is to minimize risk rather than to maximize returns," says Desmond Henry, a certified financial planner and founder of Afflora Financial Life Planning in Topeka, Kansas.

[See: 7 of the Best Stocks to Buy for 2017.]

"Think of it like rotating the tires on your car -- you don't want to get too much wear and tear on any one side," Henry says.

Morgan says target-date funds can take some of the guesswork out of rebalancing for near-retirees who aren't sure how best to allocate their assets.

"The best rebalancing happens automatically every day with target date funds. If this is done effectively, you're taking advantage of fluctuations in the market," he says.

Marc Doss, regional chief investment officer for Wells Fargo Private Bank in San Diego, advises investors to rebalance annually at the very least to make sure their investments align with their goals. He recommends that investors utilize automatic rebalancing whenever possible, particularly for tax-deferred assets, such as a 401(k).

"Automatic rebalancing ensures that you don't forget to rebalance," Doss says. "Since these assets are tax-deferred, investors can set them up to rebalance more frequently, such as quarterly or semi-annually, without incurring any tax consequences."

Make use of opportunities to ramp up savings. When you have just a few years to go until retirement, you can't afford to miss out on the chance to pad tax-advantaged accounts, Thomas says.

"As investors move into retirement, they should certainly try to power save and max out their retirement plans if possible," Thomas says, with any extra money being funneled into a taxable investment account.

For 2016 and 2017, investors older than 50 can defer up to $24,000 to their 401(k), including the regular annual contribution of $18,000 and a $6,000 catch-up contribution. Another $6,500 (which includes a $1,000 catch-up contribution) can be socked away into a traditional or Roth IRA.

Doss offers a solution for older investors who aren't able to contribute the maximum.

"We recommend setting up automatic increases through your 401(k)," Doss says, which allows you to step up annual contributions year over year.

If those increases coincide with regular salary increases, you can gradually reach the maximum contribution limit without seeing a noticeable reduction in your take-home pay.

Know where the pitfalls lie. "The greatest fear a retiree has is running out of money," says Doss, and one of the costliest mistakes an investor can is heading into retirement without evaluating their current position.

Skipping that step, says Doss, could mean you don't have a clear idea of how much assets you've accumulated, at what rate you can draw those assets down, or how long they'll last.

Clough reminds investors to look towards the long term, regardless of how little time they have left until retirement. That means taking steps to manage risk and creating a portfolio that's tax-efficient. Furthermore, investors should have an eye on the fees they're paying and their overall level of diversification.

It's also important to keep your feelings in check when evaluating the move from the working to retirement, says Sean McDonnell, a financial adviser with Advance Capital Management in Southfield, Michigan.

[Read: 10 Jobs You're at Risk of Losing as You Age.]

"Build a comprehensive financial plan and stick to it," McDonnell says. "Your actions should be based primarily on this plan, not your feelings."

Rebecca Lake has been writing about investing, finance and small business for nearly a decade. Her work has been featured on The Huffington Post, Fox Business and Investopedia. Follow her on Twitter @seemomwrite.

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