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.

A radical divergence from their comfort zone is probably not a good idea but this person is less able to wait for normal bond yields to return. The person who is under-saved also needs to consider an increased allocation to equities and a willingness to be more tactical with their exposure.

In terms of increasing equity exposure, the context is more like 60% up to 65%, not 90%. In terms of tactical, much has been written about the bad luck associated with going into the withdrawal phase just as the bull market is ending vs. the good luck of going into the withdrawal phase as the bull is just beginning. Here then, being tactical means takes steps to reduce equity exposure based on something like the 200-day moving average, or some other indicator, with the realization that there will be a couple of false alarms that come along.

I would also think about using some alternatives as substitutes for fixed income. Some alternative strategies take on volatility profiles that are similar to fixed income (but some do not!) and again this is not to suggest 40% in alternatives but too much of the portfolio in fixed income yielding 50 basis points for a person who us under-saved increases the burden to the rest of the holdings.

At the lifestyle level, a long-running theme here has been that something will have to give for people who end up not accumulating enough for the retirement they have in mind. Something could mean working longer or having a lesser lifestyle in terms of less travel, less eating out, smaller house and so on.

This does not have to be extreme (occasionally for some folks it will be extreme), life is about the journey not the destination. Cutting back to the point of being miserable, hoping for happiness at 65 amounts to wishing your life away. Simple examples of a smaller financial footprint might be driving your car for at least ten years, road tripping to national parks in your time zone for your vacation instead of flying to another country or for me if it became necessary, cutting the Extra Innings baseball package from our satellite plan.