So you’ve finally done it. You’ve finally reached the promised land of retirement after years of getting up early to work and saving hard. Now you have to figure out what to do with all the money you’ve been saving for retirement.
I’ve spent years studying how to retire, and let me tell you, there isn’t a single right answer. What works for your neighbor might not work at all for you. But there are smart things you can do to make your retirement money last longer and do more for you.
The Retirement Money Dilemma
By the time you retire, your financial situation has changed a lot. Your goal is no longer to grow your nest egg, but to figure out how to take money out without running out too soon. It’s kinda scary, right?.
The average American is living longer than ever – around 77.5 years according to the CDC. If you retire at 62, that’s potentially 15+ years you need to fund! And many folks live well into their 80s or 90s.
Let’s dive into your best options for handling that retirement cash.
Leave Money in Your 401(k)
One of the simplest options is to just.. do nothing! When you retire, you can often leave your money right where it is in your 401(k). This approach has several advantages
- Your money continues to grow tax-deferred
- You maintain access to your plan’s investment options
- You’re familiar with how everything works
But there are some potential drawbacks:
- Some 401(k) plans have minimum balance requirements
- You’ll continue paying plan fees
- You might have fewer investment options than with an IRA
Eric Breemen, a Merrill Financial Advisor, points out that “there are a number of things retirees can do to control how long their money might last.” Keeping your money invested rather than cashing everything out is definitely one of them.
Develop a Sustainable Withdrawal Strategy
One of THE most important decisions you’ll make is how much to withdraw each year. The traditional wisdom suggests 4% as a starting withdrawal rate, but that’s not a hard rule.
Your actual withdrawal rate might range from 3% to 5% depending on:
- Your age when you retire
- Total savings amount
- Other income sources
- Health status
If you have $1,000,000 saved and use a 4% withdrawal rate, that’s about $40,000 in the first year of retirement to cover your living expenses.
For women, who tend to live longer than men, sticking closer to a 3% withdrawal rate might be smarter to avoid running out of money. Also, if longevity runs in your family, you might wanna be more conservative with withdrawals.
Transfer to an IRA
Rolling your 401(k) into an Individual Retirement Account (IRA) is another popular option, especially if:
- Your 401(k) has high fees
- You want more investment choices
- You have several retirement accounts you want to consolidate
IRAs often have lower fees than 401(k) plans and offer a wider range of investment options. Plus, you’ll still enjoy tax-deferred growth until you make withdrawals.
Consider Roth Conversions
A really smart strategy that many retirees overlook is strategically converting traditional retirement funds to Roth IRAs through a series of Roth conversions.
These conversions can be especially valuable during years when your income is lower. By paying taxes now (at potentially lower rates), you can enjoy tax-free withdrawals later. This could potentially save tens of thousands in taxes over your retirement!
However, Roth conversions can be tricky to execute properly. It’s probably a good idea to work with a financial advisor who specializes in them.
Invest Strategically for Income and Growth
Many new retirees get too conservative with their investments. While safety is important, remember that retirement could last 30+ years, so you still need growth!
Nevenka Vrdoljak from the Chief Investment Office at Merrill and Bank of America Private Bank warns, “Some investors tend to play it too safe as they begin retirement.” A portfolio that’s all cash and bonds can barely keep up with inflation over time.
Consider maintaining a diversified portfolio with:
- Dividend-paying stocks for income
- Growth stocks for long-term appreciation
- Bonds for stability
- Some alternative investments like REITs or commodities to hedge against inflation
Create a “Liquidity Bucket”
If market volatility makes you nervous, consider the “liquidity bucket” approach. Set aside 2-3 years’ worth of living expenses in cash, high-interest savings accounts, money market accounts, or other liquid investments.
The rest can be invested in a mix of stocks and bonds with potential for greater growth. This psychological safety net helps you avoid panic selling during market downturns because you know your immediate expenses are covered.
Plan for Healthcare Costs
Healthcare is one of the biggest expenses in retirement, and many people underestimate how much they’ll need.
About 70% of Americans 65 and older will need some form of long-term care, which is EXPENSIVE – a semi-private room in a nursing facility averages $111,325 per year!
Some options to prepare for healthcare costs:
- Traditional long-term care insurance
- Hybrid or permanent life insurance with long-term care riders
- Health Savings Accounts (HSAs) for tax-free healthcare spending
- Setting aside a portion of your savings specifically for future healthcare needs
Consider an Annuity for Guaranteed Income
If market ups and downs stress you out or you’re worried about outliving your savings, an annuity might be worth considering.
An annuity is basically a contract with an insurance company where you give them a lump sum, and they promise to pay you a regular income for either a specific period or the rest of your life.
There are different types:
- Fixed annuities provide a guaranteed payout
- Variable annuities offer potential for growth based on investments
- Indexed annuities are tied to market performance but with downside protection
Annuities do come with fees, but they provide certainty that many retirees find comforting.
Protect Against Inflation
Inflation is a serious threat to retirees on fixed incomes. Even modest inflation of 2% can reduce the purchasing power of $1 million in cash to just $603,465 over 25 years!
Some ways to hedge against inflation:
- Treasury Inflation-Protected Securities (TIPS)
- Real estate investments or REITs
- Commodities like gold
- Stocks, which historically outpace inflation over long periods
Be Smart About Social Security
Though not a place to “put” your money, being strategic about Social Security can significantly impact your retirement income.
For every year you delay taking Social Security beyond your full retirement age (up to age 70), your benefit increases by about 8%. That’s a guaranteed return that’s hard to beat!
If you have enough savings to live on initially, delaying Social Security can substantially increase your lifetime benefits.
Explore Non-Traditional Options
Some retirees find fulfillment and additional income through less conventional approaches:
- Start a business or side gig based on your passions or expertise
- Buy rental properties for passive income
- Invest in a garden for both enjoyment and to reduce grocery costs
- Upgrade to energy-efficient appliances to reduce monthly expenses
- Remodel your home for comfort and accessibility as you age
Give Back
If you’re fortunate enough to have more than you need, consider:
- Opening college funds for grandchildren
- Increasing charitable giving
- Creating an estate plan to support causes you care about
My Top Recommendations
If I had to narrow down the absolute BEST things to do with retirement money, I’d say:
- Maintain a diversified investment portfolio – Don’t get too conservative too early
- Establish a sustainable withdrawal strategy – Start with 3-5% and adjust as needed
- Create a healthcare funding plan – It’ll probably cost more than you think!
- Protect against inflation – Your retirement could last decades
- Consider guaranteed income sources – Social Security, annuities or other stable income streams
Common Mistakes to Avoid
I’ve seen too many retirees make these errors:
- Taking a lump sum distribution and paying unnecessary taxes
- Investing too conservatively and not keeping pace with inflation
- Spending too much too early in retirement
- Not planning for healthcare costs
- Failing to adjust their strategy as circumstances change
Final Thoughts
There’s no single “best” thing to do with retirement money because everyone’s situation is unique. The key is creating a personalized strategy that balances your need for current income, future growth, and protection against risks like inflation and healthcare costs.
Remember, retirement isn’t the end of your financial journey – it’s just a new phase that requires different strategies. Regular reviews with a financial advisor can help you stay on track and adjust as needed.
What are you planning to do with your retirement money? Have you found strategies that work particularly well? I’d love to hear your thoughts in the comments!
This article is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor regarding your specific situation.
#1: Find out where you stand
| Type of account | 2025 contribution limit | 2025 catch-up contribution | Total allowed for 2025 with catch-up contribution |
|---|---|---|---|
| Employer retirement plan—401(k), 403(b), 457(b), or Thrift Savings Plan | $23,500 | $7,500 (or $11,250 for employees 60-63) | $30,500 (or $34,750 for employees 60-63) |
| Traditional IRA, Roth IRA | $7,000 | $1,000 | $8,000 |
| Health Savings Account (HSA) | $4,300 (self-only)$8,550 (families) | $1,000 | $5,300 (self-only)$9,550 (families*) |
#3: Plan ahead for Social Security
| If you were born in… | Your full retirement age is… |
|---|---|
| 1957 or earlier | Youve already hit full retirement age |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
What to do with your 401k When you Retire ? | On The Money
FAQ
Where is the safest place to put your retirement money?
The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts.
What is the $1000 a month rule for retirement?
The “$1,000 a month rule for retirement” is a simple guideline to help you estimate the savings needed to generate consistent monthly income in retirement, typically requiring $240,000 in savings for every $1,000 of desired monthly income. This rule, based on a 5% annual withdrawal and 5% annual return, suggests that withdrawing $1,000 a month from a $240,000 portfolio would provide that amount of income without depleting your savings.
How should I spend my retirement money?
One frequently used rule of thumb for retirement spending is known as the 4% rule. It’s relatively simple: You add up all of your investments and withdraw 4% of that total during your first year of retirement.
How much will $10,000 in a 401k be worth in 20 years?
A $10,000 401(k) investment could be worth anywhere from about $37,000 to over $67,000 in 2020, depending on the annual rate of return, which can be anywhere from 5% to 10%.
What should I do with my retirement money?
If you want to save some money for retirement, one of the best things you can do is put it somewhere safe and easy to get to. High-yield savings accounts and short-term bonds allow your cash to grow with low risk, plus TIPS help to hedge rising inflation.
Where should retirees put their money?
So, it can be frustrating that there is no standard playbook dictating where retirees should put their money. However, a lack of one-size-fits-all advice is actually a positive. It gives you the freedom to choose from a variety of spending and saving options, shaping your retirement into exactly what you want it to be.
Should you manage your money in retirement?
But managing your money well in retirement is important to make sure that your nest egg lasts through your golden years without having to cut back or even stop retiring. Here are the most important things to consider when it comes to managing your money after you retire.
What is a good investment for retirement?
Some good investments for retirement are defined contribution plans, such as 401 (k)s and 403 (b)s, traditional IRAs and Roth IRAs, cash-value life insurance plans, and guaranteed income annuities. What Is the Most Important Thing When It Comes to Saving for Retirement? The most important retirement strategy is to start saving early.
How can I make my retirement more comfortable?
You might also consider signing up for a new credit card that has a bonus offer you want, like extra travel miles if you are planning a trip. It’s not too late to start saving and maximize what you already have. Use these tips to make your retirement more comfortable.
What should you know about saving money after retirement?
Here are a few things you should know about saving money after retirement. Retirement is on the rise. A 2018 report by Yahoo! Finance stated there are nearly 10,000 people turning 65 years old every day. Within the next 10 years, the number will reach nearly 12,000 people a day.