Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.
Today’s question is about planning and investing as retirement looms. It’s a time when you can’t afford to lose money, but at the same time need to earn as much as possible on your investments. That can be tricky.
Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.
You also can learn how to send in a question of your own below.
For more information, check out “5 Common and Costly Retirement Investing Mistakes” and “Two Savings Accounts That Pay 10 Times What Your Bank Pays.” You can also go to the search at the top of this page, put in the words “retirement investing” and find plenty of information on just about everything relating to this topic.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by Money Talks News, serving up the best in personal finance, news and advice since 1991.
Here’s our question for today. It comes from Anonymous:
“I have seven years until retirement, and $100,000 in a savings account. What’s the best thing to do with this money to prepare for retirement? I’m gonna need it liquid.”
Well Anonymous, I’ve got three things for you:
No. 1: The best gains come from potential pain
The best way to earn more on your savings is to take a little risk. When I say “take risk,” what I mean is to consider exposing a little of your savings to the stock market. This is tricky — especially for Anonymous — for a couple of reasons.
First, because the stock market goes up and down, you really need to leave money there for at least five years, for the long term. That’s pushing up on what Anonymous can do with a seven-year window.
In addition, as I speak, the market has been climbing for more than a decade, and I’m not that confident it’s going to keep going higher for much longer, so your plans might want to take that into account. In short, within the next couple of years we could go into a recession and the market could tank. For those two reasons, I’m not really wild about Anonymous taking a lot of risk now. And apparently Anonymous isn’t wild about taking risk anyway, because Anonymous’ money is in a savings account.
For those with more time and thinking about the future, however, learn a simple rule of thumb: Take your age from 100, and put that figure as a percentage of your savings in stocks, perhaps with an investment like the Vanguard S&P 500 Index Fund in your 401k or IRA (look for a fund with low expenses). So if you’re 65 years old, you’d put 35% in stocks. If you’re 35 years old, 65%.
No. 2: Shop your savings
If you can’t stomach risk, at least try to get the best interest rates you can on your savings. Right now, some banks are paying 0.1%, but others are paying close to 2 percent. Wouldn’t you rather have 20 times the interest on your balance? All you have to do is shop for and open a new insured savings account. The extra interest could provide a nice boost to your income stream in retirement (use calculators like this simple savings calculator to see just how much). And the sooner you start saving, the better.
You definitely want to do this, folks, and it’s easy. A lot of websites, including MoneyTalksNews.com, make it simple. You can just go to our Solutions Center, click on savings accounts, and you’ll find rates a lot higher than you’re probably earning now.
That’s earning a lot more money without taking any more risk; making your money work for you. You’re crazy not to at least do that.
No. 3: Pay down debt
If you’re paying 10 percent interest on a debt, paying it off is the same thing as earning 10 percent risk-free and tax-free. You can’t beat that. So, if you possibly can, pay off those debts to prepare for retirement.
I hope that answers your question, Anonymous.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and also have earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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