Save it or spend it? That’s the question to answer when you find extra money.

Our friends at Kiplinger’s Personal Finance magazine headlined its February 2018 issue with great approaches when the figure at hand is $1,000, $10,000 or $100,000. I have some ideas, too.

The best opportunity with money that you unexpectedly discover – either from a windfall or cuts in spending you have achieved – in my view centers on “leverage.”

Leverage can mean different things to different people. It can be financial leverage by borrowing money to buy a property you can’t pay for with cash. Or political leverage when the majority needs the minority to pass legislation.

I like the following definition of leverage: “using something to maximum advantage.”

“Save or Spend” Depends on the Context

When I consider the best use of $1,000, $10,000, or $100,000, it is in the context of creating the best retirement income plan for the investor.

My plans differ slightly from Kiplinger’s: a one-time infusion of $1,000 doesn’t do much for retirement, so I imagined scenarios for a client who indicates she can reduce her annual budget by $1,000. Or the couple who rediscovered a $10,000 IRA they forgot they had. The $100,000 involves the decision to reallocate a portion of liquid, short-term savings to long-term retirement savings.

$1,000

You could lease a car for $80 more per month or …

Add an extra $1,000 of yearly payments toward a more comprehensive long-term care insurance plan. That could give you and your spouse additional nursing home care that equals tens of thousands in savings several years in the future. Or perhaps a yearly life insurance bill that is $1,000 higher would buy a Boomer another $150,000 in life insurance proceeds that can be left to your beneficiary.

These actions might also allow you to comfortably take larger monthly payments from your retirement account today. In addition, insurance offers powerful tax benefits because the proceeds are received tax-free.

Leveraging an extra $1,000 a year in this way can benefit your current circumstances as well as your family’s several years from now.

$10,000

You could use it for travel, tickets, food and lodging for you and a friend at the Olympics or…

Buy income in the future in the form of a deferred income annuity, including a form called a QLAC.

Perhaps the $10K can buy lifetime payments of $5,000 a year starting at age 85. With that guarantee, you can feel confident to spend more of your savings early in retirement rather than hoarding in case you live a long time.

Those future payments can also improve your tax situation because your tax rate will probably be lower years from now.

This is clearly smart leveraging.

$100,000

You could renovate your house with all the high-end ideas you see on HGTV or …

Rework your retirement plan.

In most cases, the extra investment of $100,000 will make every aspect of your plan work better for you, from short- to long-term benefits.

If your retirement plan, for example, skimps on early-in-retirement payments, you can buy lifetime income starting immediately. Or you can draw your savings down faster if you ensure late-in-retirement payments from a deferred income annuity. Or a combination of the two.

In all of these cases, you can use the leverage of insurance products to gain maximum advantage. A little discipline will help you make the most of any found money, and even relatively small amounts can produce significant benefits.

Your retirement plan should be tailored to the needs of you and your family. To discuss how to get the most out of the money you have saved, contact me here. I’m happy to talk with you.