I’m in a quandary about how you’ll be able to invest $750,000 that’s in my 401(k). I’m 67 years old, retired and I even have not began taking Social Security yet. What’s the right choice to preserve this money for the rest of my life that doesn’t have high fees?

-Terry

As you realize, the large challenge in your situation is choosing from the various investment options which could be at your disposal given your 401(k) asset base and desire to remain fee-conscious. In reality, the optimal solution ultimately is decided by your personal situation and goals in retirement, and possibly beyond. We’ll begin by outlining a framework you might follow to guage your current situation after which share some considerations to inform your actions. (And if you need more help together together with your funds in retirement, consider chatting with a financial advisor.)

Assess Your Personal Situation and Goals

Before you select an investment strategy, it’s imperative that you just might need a whole understanding of your personal situation and goals for retirement. Knowing that you just desire to preserve the assets for the remainder of your life is a helpful start. But go a few steps deeper by asking yourself these questions:

• Beyond Social Security and your 401(k), do you may have every other assets (brokerage accounts, IRAs, etc.) which will further support your retirement and provide additional income streams?

There are a lot of other questions you’ll ask yourself. Nevertheless, the essential point is that in answering questions comparable to those, it’s worthwhile to discover a option to achieve a greater understanding of how the capital should be invested to support your needs and goals while preserving the funds throughout your retirement. (And if you need assistance assessing your personal situation or setting goals, a financial advisor might help.)

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Consider Asset Location, Not Just Asset Allocation

In evaluating the costs of investing, you might find that asset location is just as essential as asset allocation. “Asset location” refers back to the account that your money is certainly sitting in. For the explanation that $750,000 that you just simply’re asking about is currently in a 401(k), you’d must first review the particulars of your plan. Does your plan give you the alternative of taking partial withdrawals, allowing you to utilize your savings as needed, or does it limit your withdrawal options to required minimum distributions (RMDs) and lump sums? Do you have to’re undecided, confer with your plan’s summary plan description or reach out to the plan administrator.

In case your plan doesn’t allow partial withdrawals, your options are to roll the money into an IRA, convert it to a Roth IRA or withdraw the money outright. Please take note that the Roth IRA and outright withdrawal will probably be taxable events, nevertheless the rollover to an IRA just isn’t taxable.

In case your plan means that you may take partial withdrawals, you might wish to guage whether to depart your assets there.

The positives of leaving assets inside the 401(k) after retirement is also that you just might need lower-cost investment options than are typically available to retail investors. A couple of of those options may include goal date funds, annuity contracts with pre-negotiated fees and institutional pricing on mutual funds. Furthermore, in case your former employer works with a reliable investment consultant who was specifically hired to advise the company on the plan’s investment lineup, the menu of options will probably be limited to a few of closely monitored options which could be believed to be the best-in-class based on features comparable to fund manager tenure, returns, risk and investment expenses.

The advantages of moving your assets out of the 401(k) is also to consolidate your funds with other retirement savings, access a broader range of investment options than the plan offers and avoid administrative account fees that can or may not apply to you. (And if you need assistance together together with your plan for retirement, consider matching with a financial advisor.)

Consider the Risks You Face

A prudent approach to investing for and thru retirement is to prioritize proper risk management. Your stated desire to preserve your money for the rest of your life succinctly identified essentially essentially the most common broad risks that retirees comparable to yourself might wish to balance: longevity risk and investment risk.

Longevity risk is the danger that you just’re going to outlive your money. With Americans living longer and with inflation being an ever-present threat to the dollar’s purchasing power, that’s an unlucky reality many will face. Allocating a number of of your portfolio to equities will probably be your best defense against longevity risk. Many retirement-age investors balk from equities, nervous about short-term market swings. Nevertheless, the truth is that retirement is a protracted time (think 19 to 30+ years). Your equity allocation has a protracted time horizon to resist short-term market fluctuations in favor of long-term growth.

Investment risk is the danger that your investments will lose value. As we just mentioned, it could be best to have some allocation toward equities, but you’ll also want to include fixed-income investments, including bonds and money equivalents which have characteristics of price stability and relative safety of principal. Today’s higher rate of interest environment has even made modest investment income realistic from among the many safest fixed-income vehicles comparable to Treasurys, money market funds and certificates of deposit (CDs). (And if you need assistance picking the correct mixture of investments, let a financial advisor guide you thru the tactic.)

The perfect option to Manage Risk

With the intention to further minimize disproportionate exposure to other varieties of risk comparable to rate of interest risk, credit risk, exchange rate risk, market risk and business risk to call a few, you’ll must diversify inside your equity and glued income allocations.

My suggestion here might be to utilize pooled investment vehicles comparable to mutual funds or exchange-traded funds (ETFs) which supply you the facility to hold large baskets of underlying investments. Mutual funds and ETFs are generally available as either index (passive) strategies or as vigorous strategies.

The index options provides you with exposure to large segments of economic markets at a low price. An S&P 500 index fund, for example, is a preferred kind of equity index fund. Full of life funds strive to beat their respective indices by in search of higher investment returns and/or higher managing downside risk. In reality, the vigorous funds generally have higher expenses than index alternatives, and likewise you since the investor could must make your mind up whether the additional expense justifies the vigorous approach.

Finally, you’ve to to control your asset allocation to align with the danger/return profile you deem most appropriate given your personal situation and goals. Remember, more equity generally means more risk of investment loss, but without at least some, you run into greater longevity risk. (A financial advisor can aid you navigate the numerous risks you’ll potentially face in retirement.)

Bottom Line

There could also be unfortunately no one-size-fits-all approach to investing with a watch fixed towards capital preservation and price minimization. Nevertheless, there are numerous options to contemplate. The optimal solution will depend on your unique situation and goals for retirement, as these inform your risk tolerance and return requirements. Whenever you understand these components, it’ll be easier to make your mind up where and the way you’ll be able to invest your hard-earned savings.

Suggestions for Finding a Financial Advisor

• Finding a financial advisor doesn’t ought to be hard. SmartAsset’s free tool matches you with as much as 3 vetted financial advisors who serve your area, and you could have free introductory calls together together with your advisor matches to make your mind up which one you’re feeling is true for you. Do you have to’re able to get hold of an advisor who can aid you achieve your financial goals, start now.

Loraine Montanye, CFP®, AIF® is a SmartAsset financial planning columnist and answers reader questions on personal finance topics. Got a matter you’d like answered? Email AskAnAdvisor@smartasset.com and your query is also answered in a future column.
Loraine is a senior retirement plan advisor at DBR & CO. She has been compensated for this text. Additional resources from the author could possibly be found at dbroot.com.

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