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Good afternoon,
My wife and I have about $500,000 in savings and investments. We have about $10,000 and $5,000 in a checking and savings account in one bank. We have about $145,000 in a savings account and about $8,000 in a checking account in another bank. We have about $300,000 in a savings account in our financial institution along with a couple of stocks and bonds within that portfolio.
What I have been doing is investing $100,000 in 6-month CDs and $50,000 in 1-month CDs. The rate of return has been over 5% on both. Am I doing the right investment? We are both seniors. My wife is 81 and I’m 75. We are both drawing Social Security and I have two small pensions. Our home and cars are paid for and we have no debt to speak of as we pay our credit card bills when they become due. Our monthly income is around $3,500.
Are there any suggestions you may have that we may invest in as we don’t want to outlive our money. Right now, we are living comfortably without going into our savings from the three institutions that I mentioned above.
Dear reader,
Your inclination to lean heavily on CDs right now is valid. With the higher-than-usual interest rates these days, CDs are very attractive, so it makes sense why you’d want to use them. They’re also very safe, which, when living on a fixed income in retirement, is comforting. But keep in mind that these rates, like everything else, won’t last forever.
“An older couple in that age range should consider the fact that despite today’s historically decent CD rates, that may not be enough for them to live on, depending on their lifestyle and circumstances,” said Andrew Herzog, a certified financial planner and associate wealth manager at the Watchman Group. “In other words, they have a required rate of return to succeed and they potentially risk underearning and still running out of money.”
Laddering CDs, as you are doing, is a strategy financial advisers deploy, but you have to be careful to line the accounts’ maturity dates with when you may incur certain expenses. You also have to be sure not to lock up too much in these vehicles, in case you need the money sooner. Be extremely clear on what the terms are, and the conditions if you should need to pull the money out before the CD matures.
For longer-term goals, you might want to consider dividend-paying equities and bonds, since they’ll fight off inflation over the long term, said Jack Heintzelman, a certified financial planner at Boston Wealth Strategies. Money market and high-yield savings accounts are good, but more so for short-term goals, and of course while the interest rates are so high.
Unfortunately, there’s no way to tell the future, so we can’t be sure when these rates will decline and by how much.
This isn’t to say you need to run and invest in risky options, but having a healthy mix of conservative and less-conservative assets in your portfolio could help your money continue to grow over time.
Sometimes, older investors think they need to pare down their stock allocations dramatically when they hit a certain age, and while there’s merit to that notion, having zero risk could give you another problem: inflation eating up your hard-earned dollars.
“While certificates of deposit (CDs), savings accounts, money markets, and short-term Treasurys offer appealing rates, it’s essential to account for rising inflation, especially for individuals in their 70s and 80s who may face elevated medical expenses,” said Ashley Folkes, a certified financial planner.
I’m not a financial adviser, so I can’t and won’t provide any recommendations for specific investments, but I do suggest you look more carefully into your options, and consider working with a qualified financial planner (if even only on a one-time basis) to get a financial plan in order. Doing so could generate more money for you in your and your wife’s retirements, and make you feel much more at ease with your financial security.
Diversification is key, no matter an investor’s age. As people live longer, with more years in retirement, having their savings last them through old age is imperative. “If you have a time frame longer than five years, you may need to own bonds, maybe some equities, and other investments where you can guarantee the income for more than the next 12-18 months,” said Sean Pearson, a certified financial planner at Ameriprise. “The longer you need your money to last, the more that you need diversification to keep up with the impacts of taxes and inflation.”
Readers: Do you have suggestions for this reader? Add them in the comments below.
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