You'll often hear that it's best to start investing your money at a young age so that it's able to grow into a notable sum over time. Case in point: The stock market has delivered an average annual return of 10% over the past 50 years, as per the S&P 500 index's performance. Investing $10,000 at age 25 would therefore leave you with a balance of almost $729,000 in your brokerage account if we were to apply that same 10% return over your 45-year investment window.
But the older you are, the more careful you have to be when it comes to investing in stocks. That's because once you're near or at retirement age, the investments you have might need to serve as an income source so you can pay your bills in the absence of having access to a paycheck. And you don't want to run into a situation where you have to keep cashing out investments at a loss to access the cash you need to pay your expenses.
That's why going heavy on stocks later in life isn't necessarily the best bet. But if you're 65 and on the cusp of retirement, it's absolutely not too late to invest your money.
It's all about the having the right asset allocation
When you're 25, 35, or 45 and are looking to invest, it's actually a good idea to keep the bulk of your portfolio in stocks. That's because you want your portfolio to generate the highest possible returns at a time when you're not close to having to tap that money. But as retirement nears, it's a good idea to shift away from stocks to some degree and move toward less volatile investments, like bonds.
As such, if you're 65 years old and are gearing up to invest for the first time, you don't want to put 100% of your money into stocks. That's because you might need that cash soon enough to pay your living expenses. But it's also not unreasonable to put half of your money into stocks and the other half into bonds.
Bond values don't tend to swing as wildly as stock values. So let's say you have a portfolio that's split evenly between stocks and bonds. If the stock market tanks and you need money, it may be that the bond portion of your portfolio hasn't lost value at all. So in that case, you'd just sell your bonds if conditions aren't great for selling stocks.
You don't want to steer clear of stocks completely
Even though you don't want to take on too much risk in your portfolio later in life, it's generally a good idea to hold onto some stocks in retirement. That way, the stock portion of your portfolio can continue to generate stronger returns than the bonds portion (which is likely to happen, based on how the stock and bond markets have performed historically).
As far as finding the right percentages of stocks goes, one rule of thumb you can use is to subtract your age from 110. If you're 65, that brings you to 45 -- meaning, you can consider keeping 5% of your portfolio in stocks at that age. If you're 70, you'd look at sticking to 40% stocks.
Of course, there's wiggle room with this formula, and it's really just a way to get started. And for many older investors, a 50-50 split of stocks and bonds is what's preferred throughout retirement, and that's fine, too.
The point, though, is that it's never too late to start investing your money. And you certainly shouldn't assume that stocks are off the table, even if you're getting started later in life.
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FAQs
That's why going heavy on stocks later in life isn't necessarily the best bet. But if you're 65 and on the cusp of retirement, it's absolutely not too late to invest your money.
Is 65 too old to start investing? ›
It's never too late to start investing, but starting in your late 60s will impact the options you have.
What is the best investment for a 65 year old? ›
These seven low-risk but potentially high-return investment options can get the job done:
- Money market funds.
- Dividend stocks.
- Bank certificates of deposit.
- Annuities.
- Bond funds.
- High-yield savings accounts.
- 60/40 mix of stocks and bonds.
In your later years, a conservative allocation of 30% cash, 20% bonds and 50% stocks might be appropriate. Diversified portfolios typically include a core of at least 50% stocks in part because equities alone offer the potential to generate long-term returns exceeding inflation.
Is it too late to start saving for retirement at 65? ›
It is never too late to start saving money you will use in retirement. However, the older you get, the more constraints, like wanting to retire, or required minimum distributions (RMDs), will limit your options. The good news is, many people have much more time than they think.
How much should 65 year old have in stocks? ›
As far as finding the right percentages of stocks goes, one rule of thumb you can use is to subtract your age from 110. If you're 65, that brings you to 45 -- meaning, you can consider keeping 5% of your portfolio in stocks at that age. If you're 70, you'd look at sticking to 40% stocks.
How much money should I have by age 65? ›
Since higher earners will get a smaller portion of their income in retirement from Social Security, they generally need more assets in relation to their income. We estimated that most people looking to retire around age 65 should aim for assets totaling between 7½ and 13½ times their preretirement gross income.
How much savings do most 65 year olds have? ›
Average retirement savings balance by age
| Age group | Average retirement savings balance amount |
|---|
| 45-54 | $313,220. |
| 55-64 | $537,560. |
| 65-74 | $609,230. |
| 75 and older | $462,4100. |
2 more rowsMay 7, 2024
Consider Part-Time Work
Income from part-time work coupled with your Social Security benefit could be all you need to live comfortably. It will certainly make your savings go further. More retirees are opting for this type of arrangement than have in previous generations.
Is $1,000,000 enough to retire at 65? ›
Yes, it is possible to retire with $1 million at the age of 65. But whether that amount is enough for your own retirement will depend on factors that include your Social Security benefits, your investment strategy and your personal expenses.
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
At what age should you get out of the stock market? ›
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
Where is the safest place to put your retirement money? ›
Below, you'll find the safest options that also provide a reasonable return on investment.
- Treasury bills, notes, and bonds. The federal government raises money by issuing Treasury marketable securities. ...
- Bond ETFs. There are many organizations that issue bonds to raise money. ...
- CDs. ...
- High-yield savings accounts.
The $1,000-a-month retirement rule says that you should save $240,000 for every $1,000 of monthly income you'll need in retirement. So, if you anticipate a $4,000 monthly budget when you retire, you should save $960,000 ($240,000 * 4).
What to do if you are 65 with no retirement savings? ›
If you determine you need more than Social Security income to meet your retirement needs, consider these options:
- Set a detailed budget to minimize expenses. ...
- Downsize your home. ...
- Continue working. ...
- Take advantage of tax-advantaged retirement plans. ...
- Open a traditional or Roth IRA.
Having no savings means that you will be forced to rely on your Social Security benefit for income in retirement. According to the Social Security Administration (SSA), among elderly Social Security beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
At what age is it too late to invest? ›
Invest until you die. It's never too late: Nicole Webb. Wealth Enhancement Group Senior Vice President Nicole Webb discusses how investors can get started in the market, no matter their age, on 'Making Money. '
Should a 70 year old be in the stock market? ›
Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.
At what age do you stop investing? ›
As there's no magic age that dictates when it's time to switch from saver to spender (some people can retire at 40, while most have to wait until their 60s or even 70+), you have to consider your own financial situation and lifestyle.
