Late to the Game? How to Ramp Up Retirement Investing in Your 40s and 50s

Like any anti-aging regimen, retirement planning takes regular maintenance.

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Consider that investing your $700 mortgage payment in a diverse portfolio of assets with an average 8 percent return could add more than $100,000 to your retirement savings over a decade. Of course, if you're banking on more equity growth in the home, it may make sense to stay put. With the former option, however, you're actively taking on your retirement planning and not pinning all your hopes on housing-price appreciation.

• Most advisors agree that college savings should never come at the expense of your retirement planning. There's no scholarship, grant, or loan to finance your retirement. There are a myriad of options for supplementing the cost of higher education, however.

Now, the question: If I'm playing catch-up, should I be overly aggressive with the type of investments I pursue?

Many investors are still stinging from the stock market realities of the past few years. From October 2007 until March 2009, the worst stretch of the recession and credit crisis, the S&P 500 shed 55 percent of its worth. It has since regained about half of that drop. Nearly 1 in 4 investors age 56 to 65 had more than 90 percent of their account balances in equities going into 2008, and more than 2 in 5 had more than 70 percent in stocks, according to the Employee Benefit Research Institute.

[See 50 Best Funds for the Everyday Investor.]

"Investors can't likely reach the portfolio size they want without the growth that comes from stocks," says Mike Piper, an accountant and creator of the blog Oblivious Investor. "But the crash of 2008 and 2009 provided useful information. For those who had a high stock allocation, it scared them and many moved out of stocks. It's unfortunate, perhaps, that they did. Doing so tells them something very real about their personal risk tolerance. The market has come back, but it doesn't always happen like that."

Some advisers like to think of the market in bigger snapshots, say 15 years. The stock market has never put in a 15-year negative return, according to index data. For investors in their 40s and 50s, they likely have at least 15 years until retirement. More important, say experts, is the mix of stocks within the portfolio that expose investors to both cyclical stocks (those that can grow in boom days) and steady-eddies like utilities or large conglomerates that can be solid defensive plays. Advisers collectively are worried that recent market history will unduly turn off mid-career investors from a relatively aggressive stock position they may need to finance a longer lifespan and fight inflation.

Some investors are drawn to the relative ease of target-date funds, which draw mixed reviews from financial planners after sharp losses in recent years. The funds are an increasingly popular retirement-plan default. They automatically change the fixed income-equity-cash mix depending on the retirement target date. Some plan administrators have moved to more conservative formulas in this popular product.

Stock allocation hinges in large part on how big your retirement fund is. Here's why: Retirees (and those nearing retirement age) should first figure out their necessary cash flow and work backward. If they'll be supplementing a pension and/or Social Security, they may need to draw down fewer resources from their retirement plan and can let the pot grow with help from a more aggressive allocation to equities.

The same is true if they're lucky enough to have a large retirement account and can allocate a portion to fighting inflation with an aggressive stock move, leaving the bulk in more conservative holdings. If the whole retirement plan will have to generate income, investors will need to strongly limit their stock exposure. How secure you believe your job is can determine how risky you're willing to go with stocks.

Piper sees some value in dusting off an old allocation rule-of-thumb as a starting point. It says your age represents the percentage you allocate to "safer" bonds: If you're 50 years old, for example, you allocate 50 percent to this asset class.