Question:

I’m 67 years old and retired with $750,000 in my 401(k). I haven’t started taking Social Security yet. What’s the best way to safeguard this money for the rest of my life while minimizing fees?

– Terry

Choosing the right investment options for your 401(k) can be challenging. To help you evaluate your situation and make informed decisions, consider the following framework:

Assess Your Personal Situation and Retirement Goals

Before deciding on an investment strategy, gain a complete understanding of your financial goals and retirement needs. Consider factors such as:

• Anticipated major expenses, such as a second home
• Desired lifestyle and associated annual costs
• Additional assets (brokerage accounts, IRAs, etc.) for retirement income
• Potential ongoing medical expenses
• Long-term preservation of funds for heirs

Analyze these factors to determine the appropriate investment approach for your retirement needs. Consider seeking guidance from a financial advisor if needed.

Consider Asset Location and Allocation

When evaluating investment costs, asset location is as significant as asset allocation. Asset location refers to the account in which your funds are held. Assess the details of your 401(k) plan to understand withdrawal options, such as partial withdrawals, required minimum distributions, or lump sums. You may want to:

• Rollover the funds into an IRA if partial withdrawals are restricted
• Convert to a Roth IRA or withdraw funds, but be aware of tax implications
• Leave the assets in your 401(k) if partial withdrawals are permitted

Consider the advantages and disadvantages of each option, including the availability of low-cost investment options, target date funds, annuity contracts, and institutional pricing. You can consult a financial advisor for assistance with this decision.

Manage and Diversify Risk

Risk management is crucial for retirement investments. Your main risks to address are longevity risk and investment risk:

• Longevity risk: Allocate some of your portfolio to equities to combat the risk of outliving your money. Although retirement-age investors may be hesitant about equities due to short-term market fluctuations, long-term growth can provide protection over your extended retirement horizon.
• Investment risk: Include fixed-income investments, such as bonds and cash equivalents, to minimize the risk of value loss. Consider options like Treasury bonds, money market funds, and certificates of deposit for stability and principal safety.

Additionally, diversify your equity and fixed-income allocations within pooled investment vehicles like mutual funds or exchange-traded funds (ETFs). These options provide exposure to a wide range of investments and can be either index or actively managed funds.

Align your asset allocation with your risk tolerance and goals. Remember that more equity exposure increases investment risk while less equity magnifies longevity risk. Discuss your risk management strategy with a financial advisor.

Conclusion

Preserving capital and minimizing costs in retirement requires a personalized approach. Consider your unique circumstances, goals, and risk preferences when deciding where to invest your $750,000. Consult with a financial advisor to navigate the complexities of retirement investing and optimize your strategy.

Tips for Finding a Financial Advisor

• Finding a financial advisor doesn’t have to be difficult. Use SmartAsset’s free tool to connect with up to three vetted financial advisors in your area. Schedule introductory calls to find the right advisor for you and your financial goals.

Note: Loraine Montanye, CFP®, AIF®, is a financial planning columnist for SmartAsset and provides insights on personal finance. The views expressed in this article are the author’s own and may not reflect those of Nasdaq, Inc.

Photo credit: ©iStock.com/simonkr, ©iStock.com/tdub303

This article was originally published on SmartAsset’s SmartReads blog.