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When you retire, deciding what to do with your savings will largely depend on your age at retirement. You need to balance the need for current income with the need for future growth.
Your savings have two competing uses: they can be held as reserves or used for income.
As reserves, savings need to be safe and maintain their value as prices rise. Savings are mainly needed for medical and long-term care expenses.
Decide where to put your reserves. For savings to be safe and maintain their value, you have two main options:
The interest paid by savings accounts and money market funds over the past 85 years has averaged 0.75% above inflation. So the value of your reserves – what your reserves can buy – should generally:
Experts generally recommend a conservative or moderate mutual fund that holds a widely diversified mix of stocks, bonds or mutual funds. You’ll get a higher expected return than from bank savings accounts or money market funds, but you’ll also have more risk. To invest your savings this way, your main options are on-line brokers or mutual fund firms or local brokers or financial advisers. Key considerations are:
Should you buy an annuity with some of your savings?
Annuities provide a monthly income for life, similar to the income you get from Social Security. You will usually get you more income from an annuity than from savings invested in stocks and bonds and avoid the risk of outliving those savings. But once you buy an annuity those savings are gone and can no longer be used for anything else.
If you’re not sure, it makes sense to contact a financial planner to help you decide.
Prices for similar annuities vary quite a bit. So once you know what you want, check many different on-line and in-person providers.
To “buy” an annuity from Social Security, use your savings to delay claiming and claim a higher benefit when you’re a few years older. Think of the savings you use as the price and the increase in your monthly benefit as the annuity you buy.
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