For many people, retirement means living on a fixed income and cutting costs to reduce expenses. And while those are both smart strategies to help stretch the dollar, sometimes the best option is to spend a little instead.
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If you have a little extra money, say $5,000, you may want to allocate it to things that will improve your future financial security and personal happiness. These could be low-risk investments or checking something off your bucket list.
Either way, here are some of the best ways to spend $5,000 every year in retirement.
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Invest in low-cost index funds
Retirement does not necessarily mean the end of investing. Whether you want to continue building wealth for your heirs or you just like the idea of watching your money grow – both are perfectly valid – you may want to invest in low-cost index funds. They don’t require a lot of time or energy, so you can still enjoy a leisurely retirement lifestyle while watching your money grow.
Low-cost index funds generate an average annual return of 7%, according to Brent Chandler, financial expert at FormFree. Let’s say you invest $5,000 per year for 20 years, such as ages 65 to 85. You would have about $224,000 in index funds, a lot of money for your loved ones.
Spend it on things you love
“If you are retired and have $5,000 left after paying your expenses, I encourage you to either take advantage of that money or give it away (or both),” said Jay Zigmont, PhD, CFP, founder of Childfree Wealth. “You need to find a balance between saving and enjoying life. If your needs and goals are met, any additional money is discretionary. Make a list of what you like to do or people you would like to help.
Of course, you can also put that money towards completing the tasks on your to-do list. But even if you don’t have a bucket list, you should still be able to treat yourself and enjoy your hard-earned money and retirement years.
Place it in a revocable living trust
A revocable living trust (RLT) allows you to decide how you want your assets managed during your lifetime and after you are gone. The FDIC will insure your RLT up to $250,000 (or up to $1,250,000 if you have five accounts with five or fewer eligible beneficiaries). This means your money is safe until it’s time to pass it on.
An LTR “not only secures your assets, but also streamlines the estate process for your heirs, avoiding the often lengthy and costly probate process,” said Marty Burbank, estate planning and elder law expert at OC Elder. Law. “Its implementation may seem complex at first glance, but it provides great peace of mind when it comes to managing (your) assets after his death. »
Use it for additional health care
Although Medicare kicks in when you turn 65, you may still want to invest in some additional health policies, like a comprehensive Medigap plan.
You can also put that $5,000 into a Health Savings Account (HSA). This is a tax-advantaged account that you can use to pay for qualified medical expenses that your other insurance doesn’t cover. If you don’t already have an HSA, you may not find as much value in the plan as if you had started it earlier.
Either way, it never hurts to have extra money set aside for things your health insurance policy doesn’t cover, whether it’s long-term care in a lodging facility or additional prescription medications.
“Healthcare costs often become unpredictable as one ages, and being prepared can prevent these expenses from eroding other retirement savings,” said David Blain, CFA, and president and CEO of BlueSky Wealth Advisors. “Through my leadership in formulating financial strategies, I have seen how such proactive measures can protect both the financial and physical well-being of retirees. »
And if you don’t use the money you’ve set aside, you can always leave it to the beneficiaries in your will.
Invest in long-term care insurance
According to a study, just over half of people aged 65 and over will need long-term care at some point in their lives. Although costs vary by location and needs, the average senior will pay $120,900 in long-term care costs over their lifetime.
Unless you already have over a hundred thousand dollars saved for long-term care, you may want to purchase insurance – although it may be best to purchase it before you retire.
“As medical costs continue to rise, especially for older adults, having long-term care insurance can mitigate the risk of depleting other retirement savings if extensive health care or nursing care is needed ” Burbank said. “I have seen many customers benefit from the security it offers”
Put it in your personal knowledge
You’re never too old to learn, so you might as well put that $5,000 towards improving your own knowledge, especially when it comes to financial literacy. This might involve paying for a workshop, online course, or books. You may not even need to spend the entire $5,000 – and certainly not every year.
Blain suggested using the extra money to learn more about investments, estate planning and current tax laws. This way you will have a better understanding of your own financial portfolio and how best to manage and build it.
And if you’re not interested in financial literacy, or you’re already well-versed in the topics you need to know, you can always spend the $5,000 on other things you want to learn more about.
Diversify your investments even further
You must evaluate and adjust your investments over the course of your life based on your current situation and where you want to achieve. If you think your current asset profile is too risky – or not risky enough, as the case may be – allocate the $5,000 to a change.
“Diversify your investments beyond stocks and bonds,” Chandler said. “Consider real estate investment trusts (REITs), peer-to-peer loans, or dividend-paying stocks to generate additional income streams and act as a buffer against inflation or unexpected expenses in retirement. »
Pay off all remaining debts
If you still have debt, but also have an extra $5,000 per year, use it to reduce more of what you owe.
“If high-interest debt remains, such as credit card debt, using part of the $5,000 to reduce that burden can save a significant amount in interest payments,” said John F. Pace, CPA at Pace & Associates, CPAs.
This can strengthen your own financial stability while reducing the stress that those persistent monthly payments might cause you.
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This article originally appeared on GOBankingRates.com: The Highest $5,000 You Can Spend Each Year in Retirement
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