What should investments look like in your 60s? Here’s the best investment strategy for 60-year-old investors and what that means for your asset allocation.

With your 60^th birthday knocking, retirement is on the horizon. Are you on track to retire?

Unfortunately, many Americans are behind. Most Americans hope to retire by 67, but in order to do that, experts at Fidelity agree that you should have at least eight times your income saved by the time you hit 60—yet 28% of Americans over 60 have less than $50,000 in savings. The average 401(k) balance for 60-somethings is $182,100, which means you’re on track if your annual income is about $22,762.50.

Whether you need to play catch-up or insulate the savings you already have, here’s the best investment strategy for 60-year-old investors—and how you can implement it in your asset allocation.

The Best Investment Strategy for 60-Year-Old Investors

First, a caveat: there is no single strategy to use in your 60s that will make or break your retirement. No single stock strategy or asset class will revolutionize your retirement. Everyone’s situation is different. Everyone’s risk tolerance is different. Everyone’s target retirement age is different.

However, there is an overarching theme for 60-somethings that is universal.

Basically, the closer you get to retirement, the more you should prioritize capital preservation rather than growth. In other words, because your timeline is much shorter, you have less time to recover losses, which means you need to be conservative. Thus the focus on capital preservation, which is simply an investment strategy where the primary objective is to preserve capital and prevent loss.

To do this, you would focus on safer investments rather than risky ones. A higher percentage of your portfolio is allocated toward low-risk investments with small (but reliable) returns.

This doesn’t mean that growth is off the table. You can and should achieve some growth around the margins. However, you don’t have the time you had when you were twenty, which means that you can’t take risks the way you did at twenty (or even at 50, for that matter).

How to Allocate Your Assets

What does that mean for your asset allocation? One way or another, it means focusing on less risky strategies.

If you’re playing catch-up, you can still achieve some growth. However, retirement is still close to the horizon (five to ten years at minimum, which is no time at all in investment). If you’re already on track, fantastic! Focus on preserving what you have.

Here’s what that looks like for your investment strategy.

Max Out Your 401(k) and Watch Your Allocation

Your employer-sponsored 401(k) plan (or a similar employer-sponsored plan, like a 403(b) or 457) is the cornerstone of most people’s retirement savings. If you haven’t already maxed yours out, now is the time to take full advantage of your salary to beef up your plan.

The good news is that you’re likely at your peak lifetime earnings at this stage. You’ve probably also put your kids through college already and most likely paid off your mortgage. That means every red cent you can spare should get thrown into your 401(k)—you’ll get better returns than you would in a savings account and you get a tax shield.

That said, you should not be investing the same way you did in your 20s (or your 40s, for that matter). No advisor will recommend selling all your stocks in favor of bonds—after all, stocks are still your go-to growth vehicle. The conservativeness of your strategy depends on personal preference, but it will be more conservative than it used to be.

For example, a conservative 401(k) asset allocation might have 70% to 75% bonds, 15% to 20% stocks, and 5% to 15% in cash equivalents. A moderately conservative allocation might have 55% to 60% bonds and 35% to 40% stocks. Either way, make the switch to more conservative mutual funds than you used in the past.

If you’re lucky enough to have more than the maximum in your 401(k), don’t sit on your account. Find other ways to make that retirement money work.

Consider Adding and Maxing an IRA

Did you know you can hold both a 401(k) and an IRA? In fact, you should have both. This gives you the advantage of different tax benefits and greater control over your investment choices. If you’ve already maxed out your 401(k) or don’t have one through work, it’s time for an IRA.

Most people choose between the two classic types of IRA: traditional and Roth. Contributions to a traditional IRA are tax-deductible upfront, while a Roth saves the tax break for the other end and users don’t pay taxes on withdrawals in retirement.

Plus, there are different tax deduction benefits based on your other retirement plan or your spouse’s plan.

If neither you nor your spouse have a work-sponsored retirement plan, you can deduct every cent of your traditional IRA contributions for the year. If one of you is covered (or if you’re already covered) you can deduct part of the contribution (work with a financial advisor to maximize your tax benefits). Roths are not tax-deductible (you pay with after-tax income) but there are income limits and limitations due to your tax filing status.

Target Date Fund or ETF

If you’re on track with both of those plans or you’re looking for other avenues to make the most of your retirement savings, you have two additional options: target-date funds and exchange-traded funds (ETFs).

A target-date fund is a type of mutual fund or ETF that automatically rebalances your asset allocation as you near your retirement date. The Vanguard Target Retirement 2020 Fund, for example, allocates 55% of assets in stocks and 45% in bond funds for 60-year-old investors.

If you want more control, try an exchange-traded fund, which is a security tracking an index, sector, or commodity but can be collectively bought and sold on the market as if the whole ETF is a stock. They’re a lot like target-date funds, but ETFs allow investors to choose their own asset distribution. Plus, they’re more liquid than mutual funds and have low expense ratios, both good news for soon-to-be retirees.

Let’s Build Your Nest Egg

Ultimately, the best investment strategy for 60-year-old investors depends on you. Overall, you should be more conservative than in previous decades and keep diversified assets, but the rest is up to you.

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