Retiring on $100,000 isn’t an easy task, but whether that amount can last you through retirement will largely depend on how you invest and when you retire.
Consider these options to grow $100,000 for retirement:
— Invest in stocks and stock funds.
— Consider indexed annuities.
— Leverage T-bills, bonds and savings accounts.
— Take advantage of 401(k) and IRA catch-up provisions.
— Extend your retirement age.
Invest in Stocks and Stock Funds
The biggest factors affecting how far your money will go if you retire on $100,000 are retirement age and retirement lifestyle. Consequently, leveraging that money efficiently is vital, and that’s where the stock market comes into play.
“There is an old saying: ‘The best way to keep from running out of money in retirement is to keep making money,'” says Jim Penna, senior manager of retirement services at VectorVest Inc. “Basically, that means you can invest wisely and prudently to continue to generate income in retirement.”
Allocating a portion of that $100,000 into quality stocks with proper risk management in place, along with understanding how to build a quality dividend portfolio, can certainly help a retiree.
“Be careful, though,” Penna says. “Allocate no more than 60% of that $100,000 into equities to reduce investment risk. Another good idea is to invest in stock funds. Exchange-traded funds (ETFs) have created a good alternative to invest in specific industries and sectors that allow you to diversify properly with your capital.”
Consider Indexed Annuities
A less-than-ample retirement savings account calls for a prudent income-producing investment vehicle.
“An annuity is essentially a personal pension,” says Douglas Ornstein, senior manager of integrated solutions at TIAA Wealth Management. “You give money to an insurance company and they give you a paycheck for life.”
An annuity essentially places guardrails on your retirement savings.
“If you take an individual (or couple) who has saved $100,000 for retirement, it is imperative that the principal is safe and guarded against losses,” says Steven Conners, founder and president of Conners Wealth Management in Scottsdale, Arizona. “One option that could work would be income-oriented fixed-indexed annuities, which guard against stock market losses.”
It’s not a good idea to put all your savings into an annuity since you’ll need access to liquid funds for unexpected costs down the road.
“If you’re in this situation, you should start with looking at your budget and see what you need to live on,” Ornstein says. “Anything you don’t need is a want and you’ll need to do some prioritizing. Once you know what you need, next talk to a financial advisor who can help you optimize the savings you do have to last you to and through retirement.”
Leverage T-bills, Bonds and Savings Accounts
A retiring household with $100,000 in savings should consider safe assets such as savings accounts, money markets, short-term bank certificates of deposit and U.S. Treasury bills.
“These are low risk, liquid and earn a reasonable rate of interest today,” says Stuart Sprenger, senior wealth advisor with Citi Personal Wealth Management. “The interest earned, up to perhaps $4,000 to $5,000 per year, can be used to supplement monthly expenditures.”
“Retirees should attempt to protect these funds, so they can last as long as possible through retirement,” Sprenger adds.
There are some caveats with bonds and bank savings accounts.
“T-bills, which are presently paying above 5%, may not be a longer-term answer if the (Federal Reserve) lowers interest rates,” Conners notes. “Also, bond funds that fluctuate but are held for the long term can be helpful, as many fixed income funds in the present market environment are paying excellent dividend rates.”
“Note the principal is not 100% guaranteed, so perhaps a portion could be allocated as opposed to all of your funds,” he adds.
[Read: Best Savings Accounts.]
Take Advantage of 401(k) and IRA Catch-Up Provisions
Retirees with only $100,000 in their portfolios should latch on to catch-up provisions in retirement savings plans intended to bump up savings in the short term.
“In 2023 and 2024, people who are 50 and older can contribute an extra $7,500 to their employer plans and an extra $1,000 for traditional and Roth IRAs,” says Evan Potash, executive wealth management advisor at TIAA. “People may also be able to save in an IRA and Roth IRA outside of their plans, and they can leverage taxable brokerage accounts for savings above those limits.”
If during retirement you want to increase your savings, Roth IRAs can especially help. “Unlike traditional IRAs, the Roth IRA allows for contributions to not be taxed on gains when you take funds out,” Conners says.
One note on catch-up contributions: “Beginning in 2024, with the passage of the SECURE 2.0 Act of 2022, IRA catch-up contributions will be subject to cost-of-living adjustments (COLA), which means they will increase with inflation from the current $1,000 limit,” Conners says. “The catch is you must still be working or at minimum have taxable earnings to qualify.”
[Related:Social Security COLA 2024: What to Do With the Extra Money]
Extend Your Retirement Age
If you can manage it, retiring late can produce some much-needed income that would augment a $100,000 portfolio. Realistically, that could mean approaching your employer and saying you’d like to work three to five more years.
“Absolutely, it’s doable,” Ornstein says. “Many employers want to keep employees who are open to learning and sharing their knowledge with greener co-workers.”
Employers don’t necessarily assume employees will stop working at 65 anymore, Ornstein notes.
“Consequently, a good starting point is having an honest conversation with your employer about your desire to work as long as you can add value to the organization,” Ornstein says. “Your employer may appreciate knowing more about your situation so they can plan better as a business.”
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How to Invest $100K for Retirement originally appeared on usnews.com
Update 11/20/23: This story was published at an earlier date and has been updated with new information.
