I’m wondering how to invest $750,000 in my 401(k). My girlfriend is 67 years old and retired, but she hasn’t started receiving Social Security yet. What’s the best way to keep this money for life without paying high fees?
-Terry
As you know, the big challenge in your situation is to choose from the many investment options at your disposal, taking into account your situation. 401(k) A desire to remain conscious of asset base and fees. Of course, the best solution ultimately depends on your personal circumstances and your goals for retirement and, in some cases, beyond. First, we’ll outline a framework you can follow to assess your current situation, and then share some considerations to inform your actions. (If you need more help with your retirement finances, Consider consulting a financial advisor. )
Assess your personal situation and goals
Before choosing an investment strategy, it is essential to fully understand your personal situation and retirement goals. Knowing that you want to preserve your assets for the rest of your life is a useful start. But let’s dig deeper by asking ourselves the following questions:
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Besides Social Security and 401(k), are there other assets (brokerage accounts, IRAs, etc.) that can further support your retirement and provide additional sources of income?
There are many other questions you can ask yourself. The key point, however, is that by answering questions like these you need to be able to better understand how you should invest your capital to support your needs and goals while preserving your retirement savings. That’s it. (And if you need help assessing your personal situation or setting goals, financial advisor can help. )
Consider asset location, not just asset allocation
As you evaluate your investment costs, you may find that: asset location is as important as asset allocation. “Location of assets” refers to the account where your money is actually located. The $750,000 you’re asking about is currently in your 401(k), so you’ll need to review the plan details first. Does your plan provide you with the option to make partial withdrawals so that you can use your savings as needed, or are your withdrawal options limited to one of the following? Minimum distribution required (RMD) and lump sum? If you’re not sure, see the plan overview instructions or contact your plan administrator.
If your plan does not allow partial withdrawals, you have the following options: Roll money into an IRA, Convert to Roth IRA Or withdraw your money completely. Please remember. Roth IRA Full withdrawals are taxable, but rollovers to an IRA are not.
If your plan allows for partial withdrawals, you may want to consider whether to leave your assets there.
An advantage of leaving assets in a 401(k) during retirement may be that there are lower-cost investment options than are typically available to individual investors.These options may include: target date fundsan annuity contract with pre-negotiated commissions and agency prices. mutual funds. Additionally, if your former employer works with qualified investment consultants hired specifically to advise the company on the plan’s investment lineup, the menu of options may include some that are considered best-in-class. Limited to closely monitored options. Based on factors such as the fund manager’s tenure, returns, risks, and investment costs.
The benefits of moving assets out of a 401(k) are the ability to consolidate funds with other retirement savings, access a broader range of investment options offered by the plan, and avoid managed account fees that may or may not apply. (Need help with your retirement planning? Consider matching with a financial advisor. )
Consider the risks you face
A wise approach to investing for and beyond retirement is to prioritize proper risk management. Your desire to have money left over for the rest of your life concisely identifies the most common broad risks that retirees like you must balance: longevity risk and investment risk. did.
long life risks That is the risk of living longer than money. This is an unfortunate reality that many will face as Americans live longer and inflation becomes an ever-present threat to the purchasing power of the dollar. Allocating a portion of your portfolio to stocks is your best defense against longevity risk. Many retirement-age investors are nervous about short-term market fluctuations and are avoiding stocks. But the truth is, retirement is a long time coming (think 19 to 30+ years).your stock allocation is long Time axis Tolerating short-term market fluctuations in favor of long-term growth.
Investment risk is the risk that an investment will lose value.As I mentioned earlier, you need to have some allocation to stocks, but at the same time bond investmentThis includes bonds and cash equivalents that are characterized by price stability and relative safety of principal. Today’s high interest rate environment makes even modest investment income from the safest bonds, such as: Ministry of Finance, money market funds and certificate of deposit (CD). (If you need help choosing the right mix of investments, financial advisor We will guide you through the process. )
How to manage risk
To further minimize disproportionate exposure, Other types of risks like interest rate riskcredit risk, currency risk, market risk, business risk, to name a few, need to be diversified within an allocation of stocks and bonds.
My suggestion here is to use pooled investment vehicles such as mutual funds or mutual funds. Exchange Traded Fund (ETF) (ETFs) can hold a large basket of underlying investments. Mutual funds and ETFs are typically available as either index (passive) or active strategies.
of index options Gain access to large segments of the financial market at low costs.Ann S&P500 Index FundFor example, a popular type of stock index fund. active fund We strive to outperform our respective indexes by seeking better investment returns and better managing downside risks. Of course, active funds typically have higher expenses than their index alternatives. Investors must determine whether the additional expenses justify an active approach.
Finally, you should consider your personal circumstances and goals and adjust your asset allocation to the risk/return profile that seems most appropriate. Generally, the more capital you have, the higher the risk of investment loss, but remember that without at least some capital, you face greater longevity risk. (A financial advisor It helps you avoid various risks that you may face after retirement. )
conclusion
Unfortunately, there is no one-size-fits-all approach to investing to preserve capital and minimize costs. However, there are many options to consider. The best solution will depend on your unique situation and retirement goals, which dictate your risk tolerance and return requirements. Understanding these factors will make it easier to decide where and how to invest your hard-earned savings.
Tips for finding a financial advisor
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find financial advisor It doesn’t have to be difficult. SmartAsset Free Tools , we match you with up to three vetted financial advisors serving your area. You can also have a free introductory call with an advisor to determine which advisor might be a good fit for you. Are you ready to find an advisor to help you reach your financial goals? Get started now.
Loraine Montanye, CFP®, AIF® is a SmartAsset Financial Planning columnist who answers reader questions about personal finance topics. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com. Your question may be answered in a future column.
Lorraine is a Senior Retirement Planning Advisor at DBR & CO. She received compensation for this article. Additional resources from the author can be found at dbroot.com.
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post Ask an Advisor: I’m 67 years old and have $750,000 in my 401(k). How can I save this money for the rest of my life? It first appeared SmartRead with SmartAsset.
