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Before you retire, you want to make sure you have enough income to cover your spending needs. But, plenty of people hope to leave work with the ability to cover more than just the bare necessities.
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Let’s say you happen to be a few years out from retirement, and are on track to have an extra $2,700 a month after covering the basics. Well, that’s a pretty good financial position to be in. Annually, that would amount to $32,400 for life after paying the bills.
So, what should you do with this "extra" money if you’re lucky enough to have it? Here are a few possible options to consider.
Diversify your investments
One of the first things you can do with that extra cash is invest it, so that you’re putting it to work in the background. That way, the $2,700 a month can turn into even more.
If you’ve already maxed out your 401(k) and you’re looking for new assets to invest in, you might consider alternatives like gold or art.
Opting for a gold IRA gives you the opportunity to hedge against market volatility by allowing you to invest directly in physical precious metals rather than stocks and bonds.
If you’d like to convert an existing IRA into a gold IRA, companies typically offer 100% free rollover. Others might offer free gold, silver or other metals up to a certain amount when you make a qualifying purchase.
You can check out the Moneywise list of industry-leading companies offering gold IRAs here.
Compare offers instantly and request a free information guide to help you understand how to diversify your portfolio and secure your retirement fund.
As for investing in art, that’s the type of investment that used to require having a billionaire’s checkbook. Now, anyone can invest in blue-chip artwork worth millions through Masterworks’ art investing platform.
Masterworks has already distributed back $60+ million in total proceeds (including principal) to investors across their 23 exits, posting a profitable return from selling a Basquiat painting for $8 million in 2024. See important Regulation A disclosures at Masterworks.com/cd
Donate to charities
Beyond investing, you can use surplus cash to give back to causes that resonate with you. 78% of pre-retirees and retirees between the ages of 50 and 80 indicated to Fidelity that they are committed to donating, and expect it to play a significant role in their retirement.
Giving some of your extra money to causes that you care about can allow you to make a real difference in your later years. A financial advisor can also help you explore tax-efficient strategies for giving, as 21% of retirees aren’t aware of any tax-advantaged methods of donating.
Advisor.com is a free service that helps you find a financial advisor near you. They can help co-create a plan to reach your financial goals, based on your tax circumstances, by matching you with a small list of the best options for you to choose from.
From their database of thousands, you get a pre-screened financial advisor you can trust. You can then set up a free, no-obligation consultation to make sure they’re the right fit for you.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Invest it on behalf of your kids or grandkids
Investing for your kids or grandkids is also a solid way to park your extra retirement money, as you can play an active role in helping the next generation get a head start on financial security.
College costs are seeing significant increases. A four-year degree in the 2035-2036 academic year could run as high as $230,176 for a four-year period. If you want to spare your grandkids the burden of substantial student loans, you could look into funneling some of your extra money into a 529 plan.
Platforms like Wealthfront offer 529 plans where your investments can grow tax-free. Wealthfront also has taxable, automated investing accounts where you can automatically invest in a globally diversified portfolio – without having to do the research or stock picking yourself. And when you fund it with $500 or more, you get an extra $50.
Enhance your lifestyle
Typically, common financial wisdom dictates that you shouldn’t succumb to lifestyle inflation (where your spending increases alongside your income). But, while this is prudent advice throughout much of your working years, if you now find yourself in a position to reap the benefits of smart financial moves or simple good luck, you could also use your extra funds to enjoy your life.
You can begin by asking yourself what would personally bring you joy? You may decide you want to travel more or spend more time on your hobbies, as you aren’t forced to work into your later years or you can let yourself enjoy dining out at nicer restaurants.
Just be sure you don’t go overboard, that you maintain a safe withdrawal rate, and maintain an emergency fund for any incidentals or unforeseen health expenses, even if you feel flush with cash for now.
If you have a lot of cash sitting in your checking account, consider moving it to a high-yield savings account so you can get more bang for your buck.
You can easily compare multiple online banks offering high-yield savings accounts with 4% or more in annual interest in a matter of minutes. Many options now offer $0 monthly fees and don’t require a minimum balance to earn their high APY.
For example, you can open a high-yield checking and savings account with SoFi and earn up to 4.00% APY Plus, SoFi charges no account, monthly or overdraft fees.
The best part? You can get up to $300 when you sign up with SoFi and set up a direct deposit.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
