Should You Reinvest If Your Retirement Nest Egg Is Too Big?

Most people worry about saving enough money for retirement. Between taxes, healthcare costs, and inflation, people frequently underestimate how much money they will need. However, it is also possible to save too much. It’s worth asking if your nest egg is too big.

If your retirement plan projects a big surplus, you may actually be depriving your heirs and beneficiaries of a lot of money, due to an overly conservative investment strategy. If this is the case, you may benefit from two different investment strategies. One strategy ensures you have the money you need to live the life you want while retired. The other strategy allows any surplus to grow more than it would if invested solely for the purpose of funding your own retirement.

Considering the Possibility of Two Retirement Strategies

What does it mean to have a nest egg that’s too big? Think honestly about your retirement objectives and figure out how much money you need to achieve them. Then, use pessimistic assumptions to figure out a worse-case, low-growth projection for your investments. If you still have money left over even after that, consider a change in investment strategy.

This “leftover” money is likely invested too conservatively, since you intended for it to provide returns only through your lifetime. You could allow that money to work much harder for you by setting it aside and investing it in a more aggressive manner. For example, you could use your children or heirs as inspiration and invest this money as you would given their younger age and accordingly higher risk tolerance.

In this scheme, you would have two, or possibly even more, investment strategies for your nest egg. The bulk of the money, which will fund your retirement, stays invested conservatively. However, a smaller portion is invested in a more aggressive manner, with the intent of leaving it for your heirs. The money will be exposed to higher risk, but also the chance of higher returns, which ultimately means you’ll pass on more to your heirs. Since you won’t need this money during your own lifetime, it should be somewhat easier to invest it aggressively, as you don’t have to worry about getting locked into losses. This portion of your portfolio can ride out market lows for the lifetime of your beneficiary.

Figuring Out the Best Account to Divide in Two

If you feel like you are in a good position to adopt multiple investment strategies, the question then becomes how to choose which accounts to split. First, consider how the assets you have accumulated will pass to your heirs. In general, tax-advantaged accounts minimize the amount that heirs will be required to pay. Imagine that you split your IRA into two accounts, one with an aggressive investment strategy and one that’s more conservative. You can put your spouse on both accounts so that it transfers to that person upon your death. When the surviving spouse passes, the money will be transferred to their heirs, who have 10 years to withdraw the money and pay income tax on it. Even better, if you can convert some of the more aggressive growth IRA to ROTH status, all future growth will be tax free, and will be received tax free by your loved ones. There is a big difference between leaving a fully taxable legacy to your heirs in a traditional IRA versus a fully tax free legacy in ROTH IRAs!

If you instead use a taxable brokerage account to create the two accounts, your heirs will likely end up paying much more in taxes. Whenever your heirs sell investments in the inherited account, they will need to pay capital gains taxes based on the value of the assets when you died and the value when they are sold. Furthermore, the brokerage account is taxable on an annual basis, which means this capital gains tax also applies to dividends and interest earned throughout the year. In other words, your heirs will pay these annual taxes on top of larger fees whenever the assets are sold.

Treating the Accounts as Separate Investment Entities

Creating two different investment strategies can be stressful for some investors. You need to think realistically about your ability to conceptualize these two different accounts as separate investments that you treat differently. If the stock market takes a sudden dip and you see the more aggressive account nosedive, you need to remember that this is a long-term strategy, and you should expect some volatility. You can’t panic the same way that you might with your more conservative account. If you feel like it will be too hard to maintain your calm in this kind of situation, it may be necessary to be more conservative in your approach even with the second account.

However, if you are mentally prepared to accept the risk and understand that the second account will necessarily be more volatile, you can end up amassing significantly more income for your heirs over time. The important thing to keep in mind is that this money is outside of your retirement projections, so its performance has no bearing on how you maintain your retirement lifestyle.

If you choose to go this route, it is important to be diligent in figuring out how much money you can set aside, based on pessimistic assumptions to keep yourself protected. Then, once you have secured your own retirement against inflation and longevity risks, you can then build an aggressive growth portfolio for your heirs that can include stocks, precious metals and even crypto currencies, with professional guidance as needed.

Originally published at on June 23, 2021.




Robert Ryerson authored the 2016 book What’s the Deal With Identity Theft?: A Plain English Look at Our Fastest Growing Crime.

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Robert Ryerson

Robert Ryerson

Robert Ryerson authored the 2016 book What’s the Deal With Identity Theft?: A Plain English Look at Our Fastest Growing Crime.

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