Retirement Savings: Put It Where It'll Count

In economic downturns everyone tends to tighten their budgets and that includes retirees. People notice that they are unexpectedly saving money. In the 2009 recession, the US savings rate jumped to 6% when it has been near 0% in the several years prior. In fact you may find you're actually end up with retirement savings after paying your regular expenses. So where should you put this 'extra' money as a retiree?

You may tend to just put the extra retirement savings in a bank account. But that makes your money vulnerable to inflation and unable to participate in market upturns. Its earnings are also taxed yearly and after inflation - you may as well put these retirement savings under the mattress.

Better to make these retirement savings work toward ensuring more for you in the future. At age 65 you statistically have 21 years of remaining life expectancy. Long before that time elapses, both inflation and economic fluctuations (including upturns) will affect your holdings.

Presuming that you've stashed anywhere from 1 to 2 years of easy-to-access emergency money, you should put your 'extra' retirement savings into investments of a longer time horizon. Here, you're looking for equity growth - both to offset the effects of inflation and further capitalize on the eventual rebound of the economy and the stock market.

Be sure to diversify your retirement savings among a variety of equity portfolios. Or, if you want to invest in individual stocks, the Dow Dividend Strategy is a great plan for conservative investors. (Even though the stocks in this plan are all considered "US" companies, they derive 50% of their sales overseas thereby providing instant international exposure). Although you may invest some of your retirement savings in mutual funds or ETFs that cater to large capitalization stocks, you should try to include real estate investments, international stocks, emerging markets, and smaller U.S. stocks.

These investments will reside in your 'taxable' accounts since they come from investment earnings and not work earnings (e.g. 401k or IRA). And as equity-based investments, their annual earnings should be small, since you're investing for 'growth in principal'. They may not 'move' for a while, but remember, you've already proven you don't need this money as it is retirement savings you did not have in your original financial plan.

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 these retirement savings to bloom.