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Investing 2.0: Where Do I Invest Beyond Retirement

You’ve paid off your debt. You’ve saved 3–6 months’ expenses in an emergency fund. You’re investing 15% of your gross income in a tax-favored account like a 401(k) or IRA, year after year.

And then it happens. You reach a crossroads: You can invest more than 15% of your income. Now what? Where do you invest when you’ve maxed out the tax-favored accounts you have?

This is an important decision. Before you determine where to invest the extra money, let’s talk through the options. 

Pause: Tackle The Other Steps In Your Plan

Once you’ve put that 15% in retirement every month, you need to think about two other goals: saving for your kids’ education and paying off your mortgage early.

  1. The College Fund. You and your spouse (if you’re married) need to decide how much money you want to put away in your child’s college fund. You may want to pay all of their education expenses, or you may decide on a set amount you can afford.   
  2. The Mortgage. Once you’re comfortable with how much is in that education fund, you’re ready for the next big challenge—paying off your home early. Before you go beyond 15% in investing, you need to put that extra money toward your mortgage.

Can you imagine what life will be like when you are completely debt-free? Picture yourself writing that mortgage payment for the very. last. time. You will experience a freedom that you can’t imagine. 

Here’s the deal: Life happens. And you'd much rather have you face the unknown with a paid-for house than hit a problem and have to worry about the mortgage. If it’s paid off, you own your house, no matter what happens.

Once that house is paid off and your kids’ education fund is in place, it’s time to focus on building wealth. This is where investing becomes really fun!

Next: Max Out Your Tax-Favored Investment Options

When you have extra money to invest, the first step is to max out any tax-favored plan like a like a 401(k) or 403(b) (or the Roth option if your company offers it). For 2024, the maximum you can invest is $23,000 (or $30,500 if you’re age 50 or over).1

If your employer doesn’t offer a plan—or if the plan doesn’t offer good mutual fund options—open a Roth IRA and max out your contribution limit to it, which is $7,000 in 2024 (or $8,000 for age 50 and over).2 Or, if you’ve already maxed out your 401(k), you can open a Roth IRA and fund it. You can contribute to both. You and your spouse can both have a Roth IRA, even if your spouse doesn’t work.

Some people ask me if it’s okay to have all of your investment dollars in mutual funds. They’re worried about market volatility. We get it. It’s your hard-earned money and you don’t want to lose it. But here’s the deal: over the long-term, good mutual funds will likely earn you money. Even if their value drops temporarily, history tells us the value will likely go back up eventually.

Then what? What do you do when you’ve maxed out your tax-favored investments, but you can still invest more? That’s a great problem to have. The good news is, you have lots of options!

Option 1: HSA—The Forgotten Investment Option

HSA stands for Health Savings Account. It’s a tax-advantaged account available only to people who enroll in a high-deductible health plan (HDHP). If you have an HSA, you can put money in it (before paying taxes on it) and then use the money to pay for approved medical expenses. Putting money in an HSA lowers your taxable income, so if you contribute $3,000 in a year into an HSA, your taxable income gets reduced by $3,000. That’s a pretty sweet deal!

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Market chaos, inflation, your future—work with a pro to navigate this stuff.

You can put the money in a Cash Account, which grows interest like a savings account; or you can put the money into an Investment Account, which functions a lot like an IRA.

Any money you don’t use for medical expenses stays in your HSA indefinitely and you can add to it year after year up to the contribution limit. In 2024, the limit is $4,150 for singles and $8,300 for families.3

Now, when you turn age 65, that HSA will act like a traditional IRA. You can take money out for anything you’d like, but you’ll pay taxes on it when you do, just like a traditional IRA. However, you can still pay medical expenses from your HSA tax free!

Here’s another benefit of an HSA: there’s no minimum distribution. With a traditional IRA, you’ll have to start taking out a minimum amount each year, and that amount is determined by the IRS. However, you can keep money in an HSA as long as you’d like.

There are lots of details how to invest in an HSA, so make sure you talk with an investment pro before you pull the trigger. And remember, it’s only an option if you’re in a high-deductible insurance plan. If you’re healthy, it may be a good place to invest extra cash.

Option 2: Open A Taxable Investment Account

Lots of people assume that you can’t invest in a mutual fund unless it’s in an IRA or a 401(k). Did you know you can open an investment account through a brokerage firm and put as much money in it as you want? And it’s a good option if you have money left to save.

There is one big advantage of having a taxable investment account: you can take the money out any time you’d like. You don’t have to wait until age 59½ to spend it. Why does that matter, since we'd typically tell you to leave all of your investments alone? Well, if you want to retire early, like in your 50s, you will need an income stream. But you won’t be able to touch a 401(k) or IRA without paying big penalties. A taxable account is a good solution to that problem.

The principle of good investing is the same: spread your investments across four categories of funds: growth, growth and income, aggressive growth, and international. Keep a balance across those and you’ll have a buffer against the ups and downs of the market.

The drawback of this kind of investment is obvious: you pay taxes on any money your account earnsWhen you pay those taxes will vary, so we won’t go into specifics here. Just know that Uncle Sam wants his money, so be ready for that.

Option 3: Invest In Real Estate

Purchasing a home or an apartment complex for others to rent can be a great way to earn passive income—if you can buy with cash. Don’t ever go into debt to purchase rental property! If you really want to invest in real estate but don’t have the cash on hand, save it up until you do. Debt is bad, even if it generates income!

If you decide on real estate, here are some essentials:

  1. A separate checking account. It’s easier to do the accounting work and keep track of tax-related transactions. And if you mix personal with business, you could be breaking some tax rules.  
  2. Three months’ expenses. Yep, you need an emergency fund just for your rental property. To calculate how much you’ll need, add up the monthly rent you plan to charge. Add in insurance premiums (per month), property taxes, condo fees, utilities, and (possibly) property manager costs. Then multiply by three. That’s how much you need.  
  3. Get property near you. You need to be able to do routine checks of the property to do routine maintenance (changing the air filter; painting the trim; fixing a leak) and to make sure the renter hasn’t destroyed it. If you live far away, you’ll need to figure in the cost of paying a property manager. That will eat up at least 10% of your profits.

Advice When Investing More Than 15%

Investing beyond 15% of your income doesn’t have to be complicated. In fact, plenty of millionaires keep their investing very simple—a balance of mutual funds and debt-free real estate. No need to get complicated.

Here’s one other piece of advice. When you’re looking to increase your investing, the first stop should be at your investing professional’s office. Proverbs 11:14 (NLT) says, “Without wise leadership, a nation falls; there is safety in having many advisers.” You need a good financial pro on your side who can help you wade through the options and make the best decision based on the available money and your goals.

Find A SmartVestor Pro

Whether you're an experienced investor or just starting out, the advice of an investing professional can help you with your financial goals. Seasoned investors dont' make any big financial decisions without talking to an advisor, and neither should you. If you need help, reach out to one of the investing professionals in our SmartVestor Program. They understand the financial journey you're on and can help you make a plan or fill in any gaps in your current strategy.

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This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

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About the author

Ramsey

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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