Special Report July 2, 2009, 5:00PM EST

Portfolio Planning: A Case Study

Five advisers come up with a financial plan for a hypothetical baby boomer couple with kids in college, aging parents, and a decimated retirement account

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The market meltdown unmoored many a financial plan. With the portfolios of countless baby boomers a shadow of what they once were, BusinessWeek asked five top investment advisers to draft a plan that would enable a hypothetical couple to meet all of their financial obligations.

To create the profile of our couple, we picked a scenario that describes at least a portion of our readership: a husband and wife, ages 51 and 49 respectively, with two kids in college and a third headed that way. The pair earn a seemingly comfortable $210,000, but college costs and high state taxes claim a large share of their income. Making matters worse, their taxable and retirement investment accounts were ravaged in the downturn. So they're worried about having enough money when they're ready for retirement—and they're wondering whether they'll have to endure sharp cutbacks in their lifestyle.

The five investment advisers represent different cross-sections of the financial advisory business, from a discount brokerage to a pair of high-end wealth management firms. Our experts, who agree that our couple has little margin for error, believe they can achieve their goals. "If everything falls right, they can make it," says Andrew Sharp, director of client services and research for Paul Comstock Partners, a Houston-based firm with $1.14 billion under management. Here's what the five advisers suggest:

FIDELITY INVESTMENTS

Christopher McDermott, vice-president of retirement and financial planning at mutual fund giant Fidelity, ran our numbers and came back with a 44-page preliminary report ("just the starting point of many conversations," he noted). His conclusion: The couple should aim for a nest egg of $2.26 million by retirement, which should be sufficient to provide them with an annual income of $121,200, or 75% of their pre-retirement income after adjusting for inflation. Running simulations that assumed the markets would deliver "below-average" and "average" returns over the next two decades, McDermott said that on their current course, our couple will have the savings to draw down between $7,585 (assuming "below- average" annual returns of 4.5%) and $11,506 a month ("average" returns of 8% a year) in retirement—equal to 56% to 85% of their pre-retirement income.

To buy them more time to reach the target, Fidelity recommends our couple delay retirement (as well as their start date for drawing Social Security) to age 68, given that the life expectancy of a couple who make it to 65 is now 82 for men and 85 for women. To ensure they hit that $2.26 million target, Fidelity says the couple needs to be saving $3,196 a month, or roughly $38,000 a year. And while they have been raiding their 401(k) to help cover college expenses, McDermott says that must end. "We realize they feel an obligation to put their kids through college, but they can't rob their retirement," he says. "There are scholarships, work study, student loans, and even home equity loans."

McDermott recommends an identical asset mix for both their 401(k) and taxable accounts: 60% U.S. stocks, 10% international stocks, 25% bonds, and 5% cash. Alone among all the investment advisers we surveyed, Fidelity recommended specific funds that fit that mix—and perhaps surprisingly, the suggested portfolio included no Fidelity stock funds and only two Fidelity fixed-income funds constituting just 15% of the total asset mix. "There's no in-house bias," says McDermott. Among the recommendations: roughly equal stakes (between 8% and 10%) in the Touchstone Sands Capital Select Growth Fund (CFSIX), Janus Perkins Mid Cap Value Investor (JMCVX), MainStay International Equity Fund, Nicholas II Fund, and two large-cap value funds from American Century Investments.