Question: My husband is retired (age 62) and he is getting soc. sec. We have no retirement savings. This year we began saving $1,500 a month which we plan on doing for the next 8 years. Then when I turn 70 (in 8 years) I will still receive a full pay check and soc. sec. so we can save $3,000 a month for the next 8 years. I plan on retiring at 78.
Considering our age where should we put our retirement money? Linda, Fort Collins, CO.
Answer: It's a good plan. And one reason for talking it is your question makes the point that many people will not only work during the traditional retirement years, but also save. A recent study by the Employee Benefits Research Institute (a Washington D.C. think tank) shows that odds of running short of money in retirement decline sharply if you keep on working and contributing to a retirement savings plan into your late 70s and early 80s. (The paper is The Impact of Deferring Retirement Age on Retirement Income Adequacy.)
My advice is to stay conservative with the money. I wouldn't try to make up for lost time by taking greater risks in the hope of earning a higher return on your savings. The odds are too great that the investment reach could backfire.
In the current environment the price of preserving the value of your money is a minimal return.
I would invest in a diversified mix of high-quality government-backed securities, ranging from FDIC-insured savings account to T-bills and T-notes. You might also want to consider the Treasury Inflation Protected Securities, better known as TIPS. High quality corporate debt is worth adding to a portfolio. So are blue chip stocks with healthy balance sheets and good dividend payouts are worth considering, too. (But you'll have to be comfortable with the stock prices of these companies bouncing around like crazy.)
A good resource for thinking through a conservative savings program is Worry Free Investing by finance scholar Zvi Bodie and editor Peter Clowes. You can learn more about the book and investing philosophy here.
One other thought: The financial advice business often focuses on savings and investing. It's often underestimated how creative people can get on the spending side of the equation, reducing their expenses while maintaining their standard of living. Downsizing spending is another way of boosting your financial health without taking on greater risk.