Morningstar's Christine Benz helps investors assess allocations, check their progress, target holes and overlap, and upgrade their holdings.
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By Morningstar.com | 05-24-13 | 06:00 AM | Email Article

The numbers are remarkable.

It started in 2011, when the oldest members of the baby boom (those born between 1946 and 1964) reached age 65. At the time, Pew forecast that 10,000 of them would hit that age each day in 2011. And in 2012. And in 2013. And every year until 2030, when 18% of the population (up from 13% in December 2010) will be age 65 or older.

Morningstar.com offers coverage of more than 1,700 stocks, 1,700 mutual funds, and 300 ETFs, plus market news, economic analysis, portfolio-planning insights, and investment commentary.

Concurrent with this tremendous demographic shift is another big transition--the move away from defined-benefit plans--pensions--to so-called defined-contribution plans--401(k)s, 403(b)s. According to Urban Institute data, investors now have about $10 trillion invested in defined contribution plans and IRAs, versus only $2.5 trillion in defined benefit plans.

The upshot: more people are retiring with more reliance on their own retirement accounts to fund those golden years.

Because these trends will be with us for the long term, getting a solid handle on your own portfolio (either by yourself or with the help of a good advisor) will be critical not just for baby boomers, but workers of all ages, many of whom are juggling multiple investment goals.  

During Morningstar.com's 2013 Portfolio Makeover Week (May 20-24), our director of personal finance, Christine Benz, helped a diverse set of investors fit the pieces together. She sized up existing holdings and presented a possible new lineup of investments for those in similar situations, while offering ideas on allocation, asset location, and other upgrades.

Note: names and other potentially identifying details have been changed to product the investors' anonymity. Makeovers are not intended to be individualized investment advice, but rather to illustrate possible portfolio strategies that investors should consider in the full context of their own financial situations.

Monday, May 20 | Steven and Abby: Aiming to Stretch College and Retirement-Savings Dollars
Steven and Abby, both age 39, don't have much time to devote to their finances, but they know that they should. The pair has amassed a nice nest egg of more than $400,000. But with Abby working as a stay-at-home mom for the time being, they have a limited budget for additional retirement contributions.

They'd like a second opinion on how they should allocate their assets within their various retirement vehicles: Steven's 401(k), Abby's 403(b), their Roth IRAs, and their taxable brokerage accounts. Steven also wants guidance on how he can balance actively managed funds such as  Oakmark International and  Yacktman with index products, while also limiting their overall number of holdings.  

College funding is also top of mind for this couple. With daughter Marnie almost 2 and another baby on the way, they know it's time to get serious about college savings, but they haven't yet chosen a vehicle. Steven likes the investment flexibility that comes along with Coverdell Education Savings Accounts, but recognizes that 529s' higher contribution limits and state tax breaks are pluses. Click to read more...

Tuesday, May 21 | Frank and Cynthia: Sandwich Generation Couple Plots Transition to Retirement
Frank and his wife Cynthia, both in their late 50s, represent the so-called "sandwich generation" to a T. Their son has already graduated from a state university, but they're in the midst of paying for college for their two daughters. Meanwhile, Frank's mother lives nearby and relies on the couple for ongoing care. At this life stage, Frank is looking for coaching on how to transition their portfolio to retirement five or six years from now. "I need to learn how to manage the portfolio in buckets for growth and income in retirement," he wrote.

Frank, a government civil servant and retired member of the U.S. armed services, and Cynthia, a homemaker, are luckier than many pre-retirees, in that they will be able to rely on a small civil service pension, as well as income from his military retirement package, during their retirement. But Frank's military retirement package doesn't include survivor benefits, so Cynthia's income would be constrained if Frank were to predecease her. Frank is therefore seeking guidance on how to grow and position their $600,000 portfolio as retirement draws near, while also juggling the financial pressure of getting their daughters through school. Click to read more...

Wednesday, May 22 | Alexa: Newer Investor Seeks Guidance on Asset Allocation
Alexa, 44, is a manager in the health-care industry and relatively new to investing. An enthusiastic daily visitor to Morningstar.com, she wrote, "I'm learning as I go and would really like your help." She's currently overseeing a $180,000 portfolio, including a 403(b), a Roth IRA, and an inherited IRA, and wrote for help positioning the various accounts. 

"I want to allocate my assets in a way that I can easily see when an asset class becomes overweight and needs rebalancing," she said. But she also noted that holding target date and balanced funds complicates that exercise.    

Further complicating matters are short-term considerations. Alexa would like to undertake some home remodeling and has set aside money to pay for it. But she's also wrestling with whether to instead use the money to go back to school to earn an advanced degree, because she's not very happy in her career. "I'm in a no-growth situation at work," she noted. She believes that earning an advanced degree would boost her earnings power but is concerned about the cost of paying for the additional education, as well as the fact that going back to school would stymie her retirement-plan contributions during that time. Click here to read more...

Thursday, May 23 | Ed and Joanne: Soon-to-Retire Couple Aims to Balance Love of Travel With Portfolio Longevity
With $1.8 million in their retirement kitty, Ed and Joanne wouldn't seem to have a lot to worry about when it comes to funding this next phase of their lives. Ed, 67, hopes to retire fully from his career in the financial-services industry by year-end, while Joanne, 60, is aiming to retire from her position as a media executive two years from now. But even as they're looking forward to sharing retirement, the couple is concerned about shouldering Joanne's health-care costs from the time she leaves her employer (and its health-care plan) until she's eligible for Medicare in 2018. 

An even bigger issue for this couple, Ed writes, is "balancing the maximization of life (travel) with the fear of outliving our funds." Ed notes that travel is "our only real extravagance," but acknowledges that crossing some of the far-flung destinations off their bucket list won't come cheaply.  

How can he and Joanne craft a retirement plan that will enable them to take maximum advantage of those years when they're both healthy and able to travel while also ensuring that their retirement assets can last 25 years or more? This couple would like a second opinion on their planned in-retirement withdrawal rate, as well as the makeup of their portfolio. Click to read more...

Friday, May 24 | Catherine: Seasoned Professional Seeks Guidance on Pre-Retirement Portfolio
"I'm 56, single, have $1 million saved but fear it's nowhere near enough, and wish I could work forever but know that at my age layoffs come out of nowhere." So began Catherine's email requesting a portfolio makeover.

As is the case with many people who have invested for many years, Catherine has money in several pools, including a 401(k), Roth IRA, and multiple taxable brokerage accounts. "My money is all over the place!" she lamented.

Catherine's main goal is to make sure that the total asset allocation of all of these accounts is on the right track. Although she's pleased with the growth in her portfolio as equities have rallied recently, she knows that at this life stage, it's wise to start taking risk off the table. Catherine said she'd also like another set of eyes on the fund choices she's made, including guidance on whether she can cut any deadwood from her portfolio. Click to read more...

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