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Your friend would be best off to sit down and estimate how much she will need to retire and where that income will come from. You will find several retirement planning boards on the internet. Motley Fool even offers an on line seminar on this subject.

At age 65 she will be able to collect social security, and maybe a company pension. She will also have penalty free access to the funds in her 401K and IRA plans--though she will have to pay income taxes on them.

Will social security and pensions cover her basic living expenses? If so, then 401K and investment funds become emergency funds. They can be invested to provide protection from inflation and for occasional special needs--a nice vacation, unexpected auto repairs, etc.

For inflation protection, Fools would recommend she put as much as she can in stocks, especially an S&P 500 Index fund. To the extent she needs to cover living expenses from investments, Fools would recommend maintaining 3 to 5 years of those expenses in a laddered maturity portfolio of investment grade corporate bonds or CDs. Each year live off of interest and the maturing bond. Then sell stocks to buy another year of bonds at the longest maturity. If the stock market is down, defer replacing the matured bond until the market has recovered. This protects you from being forced to sell in a down market.

Note that to last her life time, those expenses (ie burn rate) should total no more than 4% of her invested assets per year.

Best of luck to you.
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