(Money Magazine) -- Kevin Ford has worked as an engineer in the Detroit auto industry for more than three decades - currently for the car company that best suits his name. His wife, Janice, is also a veteran of the field, a fellow engineer who even ran her own dealership for a few years before leaving the industry in 2005 to do part-time business development consulting.
Kevin hoped to follow her into retirement at age 55, and two years ago that seemed doable. The family had nearly $1 million saved, plus a hefty pension; they had no debt besides a $300,000 mortgage; their son, Darrell, was out of college and daughter, Kimberly, would be done in 2011.
Then came the great crash of '08. "With the losses in the market, I was certain my retirement was pushed back 10 years," says Kevin. But last year's rebound has revived his portfolio and his dream: Is it once again realistic?
It'll be difficult for Kevin to realize his dream of retiring in four years, especially given the family's future plans to build a custom home in Virginia and renovate their lake-front summer cottage in Michigan, says financial planner Sam Fawaz of Canton, Mich. Figuring in those goals, Fawaz estimates that the Fords will need $1.2 million, alongside pension and Social Security, to sustain 40 years of retirement. They currently have $882,000 with other investment accounts, and are saving $21,000 a year for retirement, including catch-up contributions allowed for people age 50 and older.
While they could hit their target by socking away another $30,000 a year until Kevin retires, that would be a stretch since they're still paying college bills for Kimberly. And while Kevin's pension - $65,000 a year at 55 - allows him to invest more aggressively than most people his age, he shouldn't go above his current 65% stock allocation, given the short time horizon and the uncertainty of his industry. All that said, some smart portfolio moves could give the Fords a shot - albeit slim - of getting to $1.2 million by the time Kevin is 55, says Fawaz.
GO ABROAD. The Fords' portfolio is heavily weighted toward U.S. large-cap stocks. But foreign stocks are expected to grow faster in coming years than their domestic counterparts, says Fawaz. Kevin and Janice should take advantage by putting 13% in small- and midcap international funds, like T. Rowe Price International Discovery (PRIDX).
DUMP COMPANY STOCK. About 8% of Kevin's 401(k) is in Ford Motor Co. (F, Fortune 500) stock. Investing in any single stock is risky, but this one's a doozy. The company is his employer; it's his pension provider, and it's in an industry that's in ill health. Kevin should scale back to less than 5%, says Fawaz.
PUT CASH TO WORK. The Fords have 35% of their portfolio in cash. Fawaz recommends moving two-thirds of it to a high-quality short-term bond fund, as such funds typically have better returns without a lot more risk for long-term investors. One good, low-cost option: Vanguard's Short-Term Federal (VSGBX) fund.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.79%||3.76%|
|15 yr fixed||3.00%||2.96%|
|30 yr refi||3.77%||3.75%|
|15 yr refi||3.01%||2.98%|
Today's featured rates:
Nike is opening up shop on Amazon.com and the company plans "big shifts" over the coming year. More
The shutdown, which raised protests from navigator groups, will occur from midnight to noon on on all but one Sunday. More
As if Uber's new CEO didn't already have his work cut out for him, Dara Khosrowshahi has to deal with losing London. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
When you're making big career decisions, you turn to your mentors and your trusted peers. But how do you find these mentors and trusted peers in the first place? More