My wife and I are nearing retirement. I’m 64 and my wife is partially retired with full retirement income after 30 years of teaching. We live a modest life and have accumulated nearly $1 million in combined savings and 401(k). In about 8 months, I expect to see a windfall of about $400,000 come my way. I expect both of us to keep working part-time and hopefully to travel some in our retirement years. I am puzzled about how to invest that $400,000 with retirement so close.
“‘Where CDs and high-yield savings accounts are concerned, don’t stare the proverbial gift horse in the mouth.’”
— The Moneyist
Where certificates of deposit and high-yield savings accounts are concerned, don’t stare the proverbial gift horse in the mouth. With interest rates still high, high-yield savings accounts, Treasury bills, money-market funds and CDs are increasingly popular. A 5% return on fixed income “is not something that should be casually dismissed, as we have not seen these types of rates for many years,” Seltzer says.
But, he cautions, you may wish to be more conservative if you intend for these funds to supplement your income until your pension and Social Security kick in. If not? “You could actually afford to be slightly more aggressive with that cash if you are not dependent on it for monthly expenses and it becomes more of a long-term investment,” Seltzer says.
But again, don’t try to time the market. “It makes sense to consider the dollar-cost averaging approach to investing,” says Larry Pon, a CPA based in Redwood City, Calif. “This means transferring a set amount from your cash to investments. Please make sure you have a low-cost, broadly diversified portfolio.”
Down to brass tacks
Pons also has a gentle word of warning. “You will need to make sure your savings and 401(k) are properly allocated based upon your financial plans and risk tolerance,” he says, and “you will need to get realistic about the amount of dividends and interest your portfolio may generate to fund your cash-flow needs.”
And now, down to brass tacks. Assuming you can afford to live without access to that cash, how should you invest that $400,000? Paul Karger, co-founder and managing partner of TwinFocus, a wealth advisory firm in Boston, suggests a balanced approach across globally diversified equity and fixed-income mutual funds.
“We recommend an allocation of 70% fixed income and 30% equities, and we would invest these funds over time, perhaps 12 to 18 months, through a dollar-cost averaging program where you systematically move a portion monthly out of cash and into the portfolio allocation,” he says.
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