Saving enough for retirement is a major hurdle for many Americans, including those on the brink of bidding adieu to the working life at long last. According to several reports, millions of older folks are heading into their golden years with not enough to get by comfortably — or no savings at all.
But some baby boomers are on a very good track, which prompts the question: Once your retirement fund has reached $500,000, what money moves should you make? GOBankingRates consulted finance experts to find out.
Protect Your Money
Now that you have $500,000 in savings, you absolutely have to protect that nest egg. It’s more fragile than you may think.
“The worst possible thing for someone getting closer to retirement that’s in that position would be if a significant market downturn wiped away a large portion of their nest egg simply because they never re-allocated to a less risky more appropriate allocation for their age,” said Aaron Cirksena, founder of MDRN Capital.
Consider re-allocating your savings to a fixed index annuity, for example.
“We typically find fixed indexed annuities to be a more attractive vehicle to protect portions of clients accounts especially because of their lack of any fees and full principal protection,” Cirksena said. “These are essentially used as an alternative to bond funds which have proven to be ineffective tools in a rising interest rate environment and have lost people significant amounts of money while also typically carrying an advisor fee for an advisor to manage them as well.”
Reassess Your Savings Goals
Once you hit that sweet $500k savings goal, it’s time to reassess your retirement goals and tailor your financial plan accordingly.
“It’s crucial to re-evaluate your goals and timeline to ensure your savings align with your vision for retirement,” said Casey Jones, founder of CJ&CO. “This may require adjusting your budget and financial plan.”
Reassess Risk Tolerance
In addition to reassessing your saving goals for retirement, you’ll also want to reassess your risk tolerance.
“Over time, your appetite for risk may change,” said Eliza Arnold, founder of Arnie. “As you near retirement, it’s crucial to ensure your investments align with your comfort level.”
Generally, you’ll want to get less aggressive with risk as you get closer to retirement. This move will also help protect your nest egg against serious market downturns, should those occur.
Diversification is always key to mitigating risk and ensuring that a downturn in one sector of the market won’t wipe out your savings. No matter how deep your pockets are, this remains essential.
“A diversified portfolio can provide stable growth and income while insulating against market volatility,” Arnold said.
So, for example, if you have all your investments in real estate, you must start shifting your money into other spaces such as stocks (across different sectors) and bonds.
Review Your Withdrawal Strategy
So now that you’ve passed the $500k mark, you may be eager to withdraw some of it. Be super careful with this and make sure you withdraw from the savings at a sustainable rate.
“This is crucial to ensure you don’t outlive your savings,” Arnold said, adding that by having a solid strategy, you can maintain your current lifestyle throughout retirement.
Optimize Social Security Benefits
Depending on when you claim Social Security, your monthly benefits can vary by quite a wide margin. You may want to wait to collect for as long as possible.
“Waiting longer to claim can mean larger monthly payouts, maximizing lifetime benefits,” Arnold said.
Consider Long-Term Care Insurance
Getting older has its consequences, including the increased probability of needing long-term care services. Consider looking into long-term care insurance once you meet your $500k savings goal.
“Having this insurance can prevent you from draining your savings due to unforeseen medical expenses,” said Arnold.
Revisit Your Estate Plan
If you don’t have an estate plan by the time you’ve reached $500k in savings, hurry! It’s important to ensure your assets (including savings, but also property and anything else in your name) are distributed according to your wishes when you die.
“[Reviewing your estate plan] provides peace of mind that your loved ones are taken care of and reduces potential disputes,” Arnold said.
Stay Active and Invest in Health
Back to medical expenses a bit. The more you can do to avoid them by investing in preventative care, self-care and an overall healthy lifestyle (this may mean spending more on groceries, depending on the best diet for you), the better your retirement — and your nest egg — will be. Plus, as Arnold noted, “you can enjoy a more fulfilling and potentially longer retirement.”
Along with all these moves, remember to continue with other healthy money habits like building an iron-clad emergency fund, paying down debt and budgeting frequently and efficiently.
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