Q: I have been referred to you by a Clark Howard consumer action employee. My concern is what should I do with my DROP (deferred retirement) monies that I will receive after my September 28 exit from the DROP program. I undertand that a rollover is the best way to go in order to avoid taxes. I will receive $200,000+ that has accrued at 6% over the past 5 years. My Florida pension will be approx $3000 per month and my social security is $2000 per month. I am 66 and already drawing the social security. My husband is still working. This money is our retirement pot. What should I roll it into in order for it to grow?
A: You are correct that the best way to handle a pre-tax retirement lump sum is to roll it into an IRA that can be opened by any investment firm. We would suggest you research low cost custodians such as Fidelity, Vanguard or Charles Schwab. Once you roll the funds into the account at one of the institutions, you must determine the appropriate mix of investments to include in the portfolio. I cannot specifically answer this question for you without knowing your situation in complete details. Many factors including time horizon, risk tolerance, return expectations, etc. need to be taken into account before determining the exact appropriate mix.
As a standard answer, you may want to look towards “Target Date Retirement Funds”. These investments are automatically invested and reallocated according to a target date of retirement. Obviously, you will already be retired, but you can match the appropriate risk tolerance and investment allocation with your personal preferences.
If you would like to discuss your options in more detail, I would suggest you either reach out to us to schedule a free, one-hour consultation (over the phone or in-person) or visit www.napfa.org to find a fee-only financial planner near you.