Securing a safety net in retirement

Problem By investing like 30-year-olds, the couple have put their retirement fund in jeopardy. Makeover Reduce exposure to small-cap and international funds, and boost their bond allocation to 30 percent. Payoff A more conservative investment strategy will safeguard their $150,000 retirement portfolio, which serves as the couples only safety net should their pension income shrink. Strategic pick: T. Rowe Price 2015 This target-date retirement fund serves as an all-in-one portfolio that gives you equity and fixed-income exposure - and gradually grows more conservative over time. It currently holds about a third of its assets in bonds and cash, which is exactly what the Marlowes need.

Your safest investments now

• The Money 70
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Money Makeovers:

1. Twentysomething: Start out strong
2. A thirtysomething's search for financial security
3. Mid-career: Reduce retirement plan risk
4. The home stretch to retirement
5. Retired - and ready to play it safe

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(Money Magazine) -- When William Marlowe retired in 2003, following careers in the Navy and the Department of Energy, he was sure that he and his wife Kat could safely live on his military pension, her generous civil service pension and a small slug of Social Security - which together net the couple $88,000 a year.

Their situation looked even better when they sold their $619,000 house in Arlington, Va. two years ago and downsized to a home in New London, Conn., leaving them with a $150,000 profit.

But all's not well with the Marlowes. They spent the bulk of their profits making home improvements. They added a new garage, a finished basement and central air, and also remodeled their kitchen.

A bigger concern is that neither of the Marlowes' pensions has survivor benefits. When one of them dies, the other will have to live on roughly half the income he or she has been used to.

"This is the second marriage for both of us," says Kat, "and we didn't take survivor benefits because we made the decision that we were both financially independent. But the longer we're together the more we realize we're one."

This puts even more importance on their investment portfolio.

The Marlowes have only $150,000 saved for retirement through Kat's tax-deferred government thrift savings plan.

That's a small safety net by the standards of most 60-year-olds - even those with pensions. Moreover, the couple's portfolio needs work.

Currently, less than 10 percent of their portfolio is invested in bonds, while 70 percent is held in volatile small-cap and foreign funds - far too aggressive for their age, particularly in light of the slowing economy.

The Marlowes want to get their retirement on track, but they also want to enjoy it. They love to travel in their RV for weeks at a time, and if they had their way, they'd buy a vacation home in the Southwest. But with their finances in flux, they're not sure if it's possible.

For starters, the Marlowes need to dial back the risk in their portfolio, currently their only safety net beyond their home. Financial planner Jeffrey Mehler of Centerbrook, Conn. recommends raising their bond and cash allocation to 30 percent while reducing exposure to small-cap stocks and foreign funds.

One option: Roll over Kat's thrift savings plan into an IRA, which will give them more investment options.

Mehler recommends putting that money into T. Rowe Price Retirement 2015 (TRRGX), a low-cost all-in-one portfolio.

William and Kat also need to start saving again, setting aside around 20 percent of their income - and using about half of the proceeds to boost their nest egg.

A huge concern is what to do about the couple's lack of survivor benefits. One option is to tap their home equity. But since they purchased the house for just $255,000, that probably won't be enough.

Instead, Mehler recommends using the rest of this new savings to fund a term life insurance policy. They can probably find 20-year policies with payouts of $500,000 or more for an annual cost of about $6,700 for William and $3,200 for Kat.

Finally, they need to forget that vacation home. "Given how close their spending is to their income, I don't think they should do it," Mehler says. William agrees: "We've got bigger priorities now."