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Retirement money market accounts

By Andrew Freiburghouse | Money Rates Columnist

Retirement money market accounts

When you are younger, it makes sense to invest your money more aggressively -- especially money you won't be touching for a long time. In fact, investing too conservatively too early can make it difficult to reach your retirement goals. But your portfolio should shift as you move closer to retirement, because you'll soon need that money and a major loss could prove devastating.

Seeking security for retirement savings

One way to increase the security in your portfolio is to start selling your marketable securities when you age and investing in certificates of deposit (CDs). But with this approach, you may find yourself with a batch of deposits products with varying CD rates and maturities in your retirement account -- and you'll have to buy, track and manage these vehicles regularly.

There is, however, an easier way. You can add a money market account to your retirement portfolio and have money automatically transferred into it over time. This way, as you get older, your portfolio becomes more conservative, and you don't have to actively manage this process.

Why invest in a retirement money market account

As the balance grows in your money market account, so can your interest rate. With some accounts, the money you have in the account may be divided into tiers -- for example, your funds up to $2,500 may earn one interest rate, those up to $10,000 may earn a higher rate, and so on.

For many retirees or those approaching retirement, the most important thing is to feel that their money is safe. When backed by FDIC insurance coverage, a money market account can be one of the safest investments around. Meanwhile, money market rates are often higher than those associated with regular savings accounts, and depending on the account you choose, you may have the flexibility to write checks or use an ATM.

Money market rate comparison tools are available online, making it easy to evaluate different banks and find the best deals. When you choose a bank that is FDIC-insured, you can rest assured that your money market account is fully backed for up to $250,000 per depositor, per institution.

A risk of low-risk retirement accounts?

With most investment products, the risks are numerous. But because of their insurance and conservative nature, FDIC-backed money market accounts carry a much lower risk profile than most other investments.

The main risk of money market investing, in fact, is that money placed in such an account may not grow as fast as money placed in riskier places such as the stock market. But if you're nearing retirement, the risk that comes from investing conservatively may be one risk you're willing to take.

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