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To Save or Not To Save?

That's the question many workers ask when their employer stops matching 401(k) contributions.

It often pays to shop around for safe investments, including with credit unions, because some institutions pay better interest than others.

Better interest income with some risk: Income-seeking investors can earn better returns than those offered on safe investments, but at the risk of losing some, but generally not a lot of principal. High-quality corporate and municipal bonds with short maturities are worthy contenders, as are mutual funds and exchange-traded funds that invest in short-term bonds.

Dividend-paying stocks: Since retirees need both income and capital growth for a secure financial future, one investment fills both bills: stocks of financially strong companies that pay dividends. Of course, even these stocks can lose a lot of value very fast, but retired investors might want to put some money into a group of these stocks or a mutual fund or exchange-traded fund that invests in dividend-paying stocks. Incidentally, the current dividend yield of the Standard & Poor’s 500 Stock Index is 2.4 percent; the yield on the Dow Jones Industrial Average stocks is 3.4 percent.

Finally, the above ideas are not meant to be "either/or" suggestions.  You should earmark some of your money toward very safe investments, such as CDs and money-market funds, despite their paltry interest. You should also direct some money into investments that offer higher income, albeit at the risk that you might lose some principal.  

Do You Plan to Continue Working?
The above suggestions can also play a role in the investments of someone who is still in the workforce. But as an employed person, earning income from your investments is less important, since your wages or salary should provide all or most of your income needs.

Therefore, your approach to investing should probably place more emphasis on growth than on income. However, all investors need to have a good portion of their money invested in lower-risk, interest-paying securities, whether the markets are thriving or diving.    

My wife and I retired a year ago; I have a question about my 401(k) plan and IRAs. Is there any advantage to leaving these accounts alone until I reach 70 ½, or should I be taking a monthly withdrawal now? I seem to be able to make ends meet without doing so.  –Peter, Pennsylvania

You’re in an enviable position to be retired and not yet needing to tap into your 401(k) and IRAs. Here are my thoughts:

1. Your 401(k) : You might want to consider closing out your 401(k) account and rolling it over into your IRA, unless your former employer offered a wonderful 401(k). Most workplace retirement-savings plans offer limited choices, and some of the choices are mediocre at best. By moving the 401(k) to an IRA, you’ll be able to choose from among a much greater number of investments and will have better choices.

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