How to Invest $10,000 for Retirement

Americans could use a difference-maker with their retirement savings, and the sooner the better.

According to the U.S. News & World Report Retirement Inflation Survey:

— 41% of Americans stopped putting money into a retirement fund in 2022 due to a higher cost of living.

— 32% withdrew some of their retirement savings to keep up with inflation.

— 72% of Americans say they’ve “reevaluated” their retirement since the onset of COVID-19.

“The current state of the retirement savings market is abysmal,” says Robert Johnson, CEO at Economic Index Associates, an active index data firm in New York. “According to a report compiled by Vanguard last year, on average, Americans have saved around $140,000 for retirement. But the median 401(k) balance is only $35,000.”

Every dollar counts when playing catch-up with retirement savings. So once the economy improves and the cash starts flowing in again, you’ll need an action plan.

[Read: How to Save for Retirement.]

One thing to consider is how you can deploy larger sums of money — say, $10,000 — into a retirement fund in a way that maximizes that money’s impact on retirement savings, without breaking the household budget.

If you get a $10,000 windfall from an inheritance, a workplace bonus or raise, or from the profit stemming from a home sale, here’s how experts would take that lump sum and invest it for retirement.

How to Invest $10K for Retirement: Action Steps

1. Get into a 401(k) and a company match.

2. Invest in index funds.

3. Focus on age-appropriate investing.

4. Leverage high-yield accounts.

5. Put Money Into a Roth IRA

6. Consider a REIT.

7. Weigh debt reduction versus investing.

Get Into a 401(k) and a Company Match

How should you invest a $10,000 windfall? Start by adding to a retirement savings account that will allow your funds to compound over time.

“Compounding depends on three things: time, money and positive returns,” says Barbara Selig, wealth manager at TIAA in Daytona Beach, Florida. “The first option to consider is to take advantage of your employer plan. Many plans include a match to increase your savings, so your employer’s part of the contribution will help you meet your goals faster.”

“Plus, with a salary reduction, you’ll be dollar-cost averaging into the market over a period of time,” Selig adds. “The actual investments should be determined based on your risk tolerance and time horizon in a diversified portfolio. In most cases, this is for the long term.”

[Read: 3 Challenges of Delayed Retirement.]

Invest in Index Funds

If you have a 401(k), IRA or SEP, investing in low-fee, diversified equity index funds is a good idea.

“Starting with an index fund (which tracks the performance of a specific market sector) and continuing to invest consistently whether the market is up, down or sideways is a very prudent strategy,” Johnson advises. “Exchange-traded funds and exchange-traded notes that track broad market indexes such as the S&P 500 index or the Dow Jones Industrial Average are wholly appropriate for most investors.”

Additionally, you can apply some index fund amplifiers that will help you store away more money, like dollar-cost averaging.

“Dollar-cost averaging into an index mutual fund or ETF is a terrific lifelong strategy,” Johnson notes. “Dollar-cost averaging is a simple technique that entails investing a fixed amount of money in the same fund or stock at regular intervals over a long period of time.”

Focus on Age-Appropriate Investing

Your age plays an influential role in where you steer that $10,000. It all really comes down to investment time horizons.

“Those investors with a longer time horizon (for example at age 25 or 30) can benefit from the reduced volatility and compounding returns that can be generated with an investment in a long-dated private equity or private credit fund, managed by top-tier asset managers,” says Milind Mehere, CEO at New York City-based Yieldstreet, an alternative investments platform.

For those investors with a shorter time horizon, such as those aged 45 to 50, Mehere recommends a blended approach, with increased allocation to yield-generating assets with downside protection.

“These investments can include real estate debt or art financing, which are collateralized by real assets, which gain value in an inflationary environment and can provide principal protection,” Mehere says.

Leverage High-Yield Cash Accounts

You may want to take a protective stance with that $10,000, especially if you’re nearing retirement age, and steer it into a bank savings account.

“Retirement savers have benefited from high-interest rates in specific savings account programs,” says Timothy Hooker, co-founder at Dynamic Wealth Solutions LLC, in Southfield, Michigan.

Hooker recommends taking a blended approach and coupling cash positions with multiple asset classes in an IRA with stocks, bonds and gold.

“Together these asset classes will help provide long-term stability and capital appreciation,” Hooker says.

Put Money Into a Roth IRA

If you’re age 50 or older and have $10,000 available to save for retirement as a one-time deposit, and it cannot be matched by your employer as a 401(k) contribution, consider putting it into a Roth IRA.

“Since the 2023 contribution limit is $6,500 with a $1,000 catch-up for individuals age 50-plus, you’d have to make the contributions for two years,” says Bruce Tannehill, director of estate and business planning at MassMutual. “Since you can make a contribution for 2022 until April 18 this year, you can contribute the $10,000 into a Roth IRA now and have it treated as contributions for 2022 and 2023.”

The benefits of a Roth IRA include tax-deferred growth, and no income tax on withdrawals if the account has existed for at least five tax years and you’re over age 59 1/2.

“Also, contributions can always be withdrawn without tax or penalty, and you don’t have to take required minimum distributions,” Tannehill notes.

[Read: How to Invest $100,000 for Retirement]

Consider a REIT

REITs offer investors access to a wide range of real estate sectors while historically providing a steady stream of high dividends, the potential for long-term capital growth and diversification.

“Given that REITs typically provide strong dividend income, they are an important investment both for retirement savers and for retirees who require a continuing income stream to meet their living expenses,” wrote the National Association of Real Estate Investment Trusts in a statement to U.S. News & World Report.

Investors can invest in REITs by purchasing shares of a REIT, or through a mutual fund or ETF that invests in REITs.

“One of the benefits of REITs is that you don’t need a lot of money to invest in them,” NAREIT notes. “Some ETFs that invest in REITs are currently trading between $50 and $100 dollars, so just $100 can get everyday investors exposure to well-diversified commercial real estate, and all the benefits that go with real estate.”

NAREIT’s research also shows that REITs’ strong balance sheets have “helped them remain resilient to higher interest rates and are helping them navigate ongoing economic uncertainty,” the association adds.

Weigh Debt Reduction Versus Investing

Should you pay down debt first with the $10,000 or invest directly in the markets for retirement?

Whether it’s better to pay off debt or invest the $10,000 for retirement savings depends on several factors, such as the type of debt, how much the payments are, whether you are just paying the minimum, the interest rate you are being charged, and whether you will be able to pay off the entire debt.

“Paying off a high-interest-rate credit card or loans may be the best investment you can make — if you later invest the money you were paying on the credit card or loan,” Tannehill says. “Paying $10,000 on a $20,000 car loan will reduce the interest you pay and allow you to pay it off sooner but will not reduce your monthly payment.”

In that case, putting that money into a retirement account might be a better choice, Tannehill adds.

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