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Aug. 15, 2022, 12:35 p.m. EDT

What can I do with money I don’t need in retirement?

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By Paul A. Merriman

Sometimes people ask me how to invest money that they won’t ever need. Most often, I hear this from investors who must take required minimum distributions from retirement accounts and don’t need the money to live on.

In many cases they see this requirement as a problem. But instead, they could regard it as an opportunity.

If the question is what to do with this money, the best answer will come from understanding what you mean by money you “won’t ever need.” If you intend to leave the money to your heirs, that’s one thing. If you have already provided for your heirs and you are sure your own needs are taken care of, that’s something else.

My strongest recommendation is that you treat this money — and all your money, for that matter — with respect.

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First things first: Unless you have set up some bizarre trust, this surplus money won’t just sit in cash for the next 150 years. Someday, it will go to somebody or some organization. 

Review your will (or create one) and spell out your wishes.Then look at the situation from the point of view of the ultimate recipient. What would they want?

Most likely they would love to get their hands on the money right away. If you’re going to keep it under your control, how much risk would (or should) they take with it in the meantime?

If, after establishing an ample emergency fund, you have money you really and truly don’t need, and if nobody else needs it either, then I think you should do whatever seems right to you.

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Here are eight ideas to stimulate your thinking.

1: If this money will eventually go to a child or grandchild, consider giving some of it to them now, while you’re around to observe what they do with it (and also so you can offer a “course correction” in the unlikely event they want your advice).

2: If you don’t want to give them the money now, but they have invested money in a traditional IRA, you could suggest they convert that IRA to a Roth and offer to pay the tax. This will let you help them without giving them the opportunity to squander your generous gift.

3: Barring either of those alternatives, you can invest the money with an equity/bond allocation suitable for their risk tolerance instead of your own. One easy way to do that is invest in a target-date retirement fund with a target year close to their 65 or 70 birthday.

4: If the money will one day go to an organization, you could invest it the way many long-term endowments are set up: with an equity allocation in the neighborhood of 60%. 

In this case, I see no reason to make the organization wait to get every penny from you. A properly diversified portfolio that’s divided 60/40 will have no trouble spinning off annual distributions of 5%, which you can donate. That will give the organization some benefit right away. It will let them lavish their appreciation on you. Perhaps most important, it will give them an opportunity to demonstrate to your satisfaction (or not) that they are worthy of your money.

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