Find Your Balance in Your 50s

As many employees reach their 50s, they are planning for retirement in the next decade or even sooner, but many are woefully underfunded in their 401(k) or IRA.

Investors who are more cautious and want to avoid the volatility that often occurs in the stock market are seeking lower risk investments such as bonds, gold or cash.

Finding the right balance to ensure you have saved enough money for retirement, which could include higher costs for health care and travel, is often painstaking as the longevity has increased for many people.

Here are ten simple, clear and straightforward steps to rebalance your holdings, so you have the right mix of stocks, bonds and cash in the later stages of your career.

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Stick with Stocks
Stick with Stocks

Even in your 50s, investors need a stock heavy allocation of 50% to 60% given a possible retirement of 25 to 30 years, said Greg McBride, chief financial analyst for Bankrate, a NewYork-based financial content company.

Rebalance Through New Investments
Rebalance Through New Investments

For assets in a taxable account, it is best to do as much of the rebalancing "through new investment rather than triggering capital gains taxes by selling off one thing to buy another," to avoid short-term capital gain tax, he said.

Make Those Catch-up Contributions
Make Those Catch-up Contributions

Beginning in the year you turn age 50, investors are eligible for catch-up contributions to tax advantaged retirement accounts. This means being able to contribute up to $24,000 a year to a 401(k) instead of $18,000 and $6,500 to an IRA instead of $5,500, said McBride. This is beneficial for investors who started saving for retirement in their 30s or was not able to max out their accounts each year.

Don't Be too Cautious
Don't Be too Cautious

Don't become too risk averse with your investments.

"People in their 50s should recognize that their life expectancy is long and they need to have investments that will carry them through their life," said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.

Since 1926, according to data compiled by Ibbotson Associates, the average annual return for large capitalization common stocks is approximately 10% while government and corporate bonds return around 6% and cash generates a paltry return of 3%.

"You get much more compounding the larger the annual return," he said. "Investing in no risk securities like savings bonds allows one to sleep well because they aren't going to lose money. But, investing in savings bonds isn't going to enable you to accumulate significant wealth. My advice is not to be in a big hurry to lighten your equity exposure."

Make Friends With Dividends
Make Friends With Dividends

Consider moving your holdings to higher dividend-yielding securities, said Johnson.

"One thing people may want to do as they get into their late 50s is to start moving some of their stock positions into higher dividend yield stocks that will help provide income in retirement," he said.

Simplify Your Holdings
Simplify Your Holdings

A prudent move in retirement is to have your equity allocation in broadly diversified stock mutual funds and ETFs, said Johnson. That helps you keep it simple.

"Avoid being highly concentrated in certain industries and sectors and definitely avoid any leveraged or inverse ETFs," he said.

Prepare for the Worst
Prepare for the Worst

Given that we are nine years into this bull market, investors may want to raise some cash or at the least make sure you are comfortable with what you own, said Ron McCoy, a portfolio manager of the LOWS Strategy with Covestor, the online investing company, and CEO of Freedom Capital Advisors in Winter Garden, Fla.

"One of the biggest things investors can do is mentally prepare themselves for another bear market," he said. "No one knows when it will strike, but it will happen just like hurricanes. Take an inventory of what you own and assess your risk level. If you are unsure, then call an advisor who might assist and chances are it would cost you nothing for a free look."

Have Shorter Term Corporate Bonds
Have Shorter Term Corporate Bonds

Having 15% to 20% of portfolio in shorter term corporate bonds would be appropriate people heading towards retirement, said McCoy. Keep the duration on the short end of less than eight years and try to stagger your maturities.

Increase Your Risk if You're Underprepared
Increase Your Risk if You're Underprepared

"My view is that if you are 50s and you don't have enough saved, you need to take more risk since you don't have time to compound returns," said K.C. Ma, a CFA and director of the Roland George investments program at Stetson University in Deland, Fla.

"Do not worry about the bear market because we never had one last 15 years," he said. "Actually, investors would like to see a bear market soon, so they can get in at a lower cost basis and still have enough time to wait for the recovery."

Create a Plan to Get Equities to 10%
Create a Plan to Get Equities to 10%

If you are 50s and have enough in your retirement portfolio, "You must have done a great job for the last 25 years since it was the longest bull market," Ma said.

"Ten years before you are scheduled to retire, you need to bring down your equity portfolio to an ending level 10%," he said. "In the first five years, you will reduce the equity 5% a year and the next five years, you bring it down 12-13% a year to no more than 10% into retirement. The final portfolio at 65 should look like this - 10% in dividend stocks, 60% in investment-grade bonds and 30% cash."

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