subject: If You Can Save During Retirement, Put It Where It Will Count [print this page] In economic downturns everyone tends to tighten their budgets, and that includes retirees. In fact you may find you're actually saving money in retirement after paying your regular expenses. So where should you put this 'extra' savings as a retiree?
You may tend to just put it into your savings account. But that makes your money vulnerable to inflation and unable to participate in market upturns. Its earnings are also taxed yearly. If you do these, you may as well put it under the mattress.
*Make your extra savings count:
Since you saved that money, you didn't really need it to live. So, it's better to make it work toward ensuring more for you in the future. At 65 you statistically have some 20 years of remaining life expectancy. Long before that time elapses, both inflation and economic upturns will affect your holdings. So take advantage of the time you have left.
Presuming that you've stashed anywhere from 1 to 2 years of easy-to-access emergency money already, you should put your 'extra' savings into investments of a longer time horizon. You should be looking for equity investments to give you more growth - tax deferred growth too. Do this with your extra savings to offset the effects the purchasing power loss caused by inflation as well as further capitalizes on the eventual rebound of the economy and the stock market.
Be sure to diversify your money among a variety of equity investments. Although you may invest some in funds that cater to large capitalization stocks, you should try to include real estate investments, international stocks, emerging markets, and smaller U.S. stocks. I wouldn't necessarily speculate, but you can choose to high risk investments then you ordinarily would chose.
These investments will reside in your 'taxable' accounts since they come from investment earnings and not work earnings. And as equity-based investments, their annual earnings should be small, since you're investing for 'growth in principal'. That's taxed only at long term gain rates when and if you eventually cash them in. They may not 'move' for a while, but remember, you've already proven you don't need this money.
Consider this money outside your normal portfolio arranged according to your 'risk' profile and income requirements. This way you can afford to risk the 'wait' needed for it to bloom.
In fact, those of you who are getting by easily with your retirement income sources and investments should allot some 5% of your holdings for a long term investments that need 'time' to bloom too. You may even put a little bit in precious metals.
