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Leave your nest egg in savings account?

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Dear Dr. Don,
I don’t own a home and have about $100,000 in a savings account that yields very little interest. I am 58 years old and plan to work until full retirement. I have a six-figure income and save about $2,000 a month. Is a savings account the best place to keep this money? Or are there other good (and safe) ways to maintain my nest egg?
— Lo-Ann Allocation

Dear Lo-Ann,
A savings account certainly isn’t the best way. Your principal may be protected by the savings account’s Federal Deposit Insurance Corp. insurance. But the interest is so low that your purchasing power is diminished by inflation over time.

You need to look at the big picture before you decide how to invest this money. The goal is to meet your income needs in retirement. Will you receive Social Security benefits when you retire? I’m going to assume that you will. Will you also receive a pension? If yes, both it and Social Security will meet part of your retirement income needs.

If you can save $2,000 a month, and you have about 90 months until your Social Security full retirement age of 66 (I assumed you were 58 ½), that’s an extra $180,000 in savings on top of your current $100,000. Even if you retire at age 66, you should consider not filing for Social Security benefits until age 70, so you will earn delayed retirement credits. Using your savings to finance your retirement income needs between ages 66 and 70 can be a smart financial decision.

As you approach retirement age, it makes sense to dial back on the risk in your investments. You’ve dialed risk, at least risk to principal, down to zero, but you’re not earning a high enough yield to keep pace with inflation.

I suggest meeting with a financial planner to discuss your retirement income needs and how you should be investing to meet those needs. I’d prefer that you meet with a fee-only planner and pay for a couple of hours of their time. And keep interviewing planners until you find one that you like.

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