Am I too old to start investing?

If you’ve forgotten to save for your retirement, you’re facing an uphill battle when it comes to your financial future. The longer you wait to get started, the tougher it is to amass enough in cash and investments to last you the rest of your life.

But are you too old to start investing? Nope. There are still ways to achieve a comfortable retirement from a delayed start.

No matter how much working time you have left, you should be investing. Because you’re not just socking away cash for the day you retire, but rather looking for money to last the rest of your life.

Understand your priorities

As a later starter, it will be tougher to get to the point where your nest egg will cover your total current costs of living. It might be impossible. As a result, you’ll be best served by figuring out what really matters to you and working toward a retirement that provides for your top priorities.

For instance, you’ll need a place to live, of course. But once your kids are grown, do you have to stay in the home where you raised them? Downsizing can free up cash currently trapped as equity in the home, lower your monthly expenses, and enable the rest of your nest egg to stretch further.

Likewise, does retirement have to mean you’re done with working? Could you go part time or switch to a lower-paying — but less stressful — job? The rule of thumb is that you can safely spend 4% of your assets in retirement annually. Flip that around and it means that every dollar you earn annually represents as much as $25 you didn’t need to save.

Then, set your target

Using that same 4% safe spending guideline, you can figure out how much you need to save to have your nest egg cover your living expenses. The table below shows how much you need to save each month (and at what return rate) to have your investments produce $1,000 of annual cash for your retirement:

Years to Go 4% Annual Return 6% Annual Return 8% Annual Return
5 $377.08 $358.32 $340.24
10 $169.78 $152.55 $136.65
15 $101.59 $85.96 $72.25
20 $68.16 $54.11 $42.44
25 $48.63 $36.08 $26.29
30 $36.02 $24.89 $16.77
35 $27.36 $17.55 $10.90
40 $21.15 $12.55 $7.16

So, for instance, assume you have 20 years until retirement and need your nest egg to cover $15,000 per year of expenses. You’d need to invest $636.60 ($42.44 * 15) per month at an 8% return or $1,022.40 ($68.16 * 15) per month at a 4% return to reach that goal.

The money you put away won’t necessarily have to cover your entire current costs of living. Not only can you make priority calls to reduce your expenses, even under the worst likely scenario, Social Security will pay something if you’ve earned benefits.

Finally, work your plan

Once you’ve determined where you’d like to be when you’re ready to retire, the rest is largely a matter of executing against your plan. But to have a chance of earning anywhere near the upper end of those returns, you need to invest a decent part of your money in stocks.

Over the long haul stocks have been an incredible source of wealth generation. And since you’re looking for your retirement nest egg to help fund the rest of your life, your anticipated time frame should extend well past your expected retirement date. That makes you a long-term investor, so you need to balance your near-term need for income (bonds, cash) with your long-term need for growth (stocks).

– Chuck Saletta

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1 Comment

  1. Larry Argenbright

    I’ve been disabled for the last 12 yrs, and also support my 31 yr son who also suffers from depression.
    I’m starting to work again and would like to be aggressive (Rule Breakers? ).
    Would a broker even touch me?