02 Jan I’m 52 with $2 million in retirement savings. What should I do next?

Q. I’m 52 and married. We have no debt and we have saved about $2 million in retirement accounts, thanks partly to an inherited IRA. We earn more than we spend, max out our 401(k) plans and have no big bills. And we have an emergency fund. What should we do with our extra money each month?
— Investor

A. Congratulations!

You have done an excellent job managing your finances.

You are in the asset accumulation stage of life and can begin to add to your portfolio, said Darren Zagarola, a certified financial planner and certified public accountant with EKS Associates in Princeton.

He said one of the first things you need to address is your retirement goals, including when you would like to retire — however you decide to define retirement — and the lifestyle you would like to maintain.

Translation? How much will you will spend annually in retirement?

Once these questions are answered, you can determine how best to save the extra money, Zagarola said.

“Given that most of your savings are in retirement accounts, which will be taxable when you take distributions to fund retirement, we recommend establishing a formal monthly savings program into a non-retirement joint brokerage account,” he said. “Your goal should be to build up non-retirement savings to fund your retirement lifestyle more tax-efficiently.”

An added benefit is that if you need the funds for a financial emergency greater than your emergency fund, the funds are easily accessible and would only incur a potential capital gains tax, compared to ordinary income tax or penalties from a retirement account distribution, he said.

“It would be best if you choose investments that meet your risk tolerance, developing a balanced portfolio to achieve your long-term goals,” he said. “The correct mix of equity and fixed-income (bond) investments will provide you with reduced risk to the market’s volatility by spreading that risk over multiple asset classes.”

The monthly savings program will dollar-cost-average purchases into the market just like your 401(k) plans, he said. Each month, the same dollar amount will be invested, and the number of shares purchased will vary with market conditions. The automatic nature of the monthly savings plan will allow you to participate in the compound growth of the market, he said.

Another option, if your combined income is less than $214,000, is to contribute to a Roth IRA annually, he said.

The maximum contribution for a person over 50 is $7,000 in 2022, increasing to $7,500 in 2023, he said.

“Contributions to the Roth IRA will also be invested based on your risk tolerance and long-term goals, but more importantly, they will grow tax-free if the account is held for more than five years,” he said.

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This story was originally published on Jan. 2, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.