It's a truism that the most valuable asset to an investor is time. Given enough decades, small, regular contributions can easily (and relatively painlessly) turn into a nest egg large enough to fund a comfortable retirement. However, some folks -- and we won't judge their reasons -- don't start saving and investing until the ends of their careers are practically in sight.
In this segment of the Motley Fool Answers mailbag episode, a listener is looking for help getting his parents on track. He has the sketch of a plan, but given the time limitations, he's looking for a faster (but still fairly safe) way for them to build up the portfolio they will need. Hosts Alison Southwick and Robert Brokamp -- with help from Megan Brinsfield, director of Foolish Planning with our sister company, Motley Fool Wealth Management -- have some advice for the family.
A full transcript follows the video.
This video was recorded on March 26, 2019.
Alison Southwick: The next question comes to us from someone who wants to stay anonymous. "My question is about how to best prepare my parents for retirement who are 50 and 60 years old and have little to no savings. My suggestion was to invest in a solo 401(k) and a Roth IRA and try to contribute 30% of their household income for the next 10 years with about 60% stocks and 40% bonds. Is there a faster but still relatively safe way for them to maximize savings for retirement?"
Robert Brokamp: First of all, Anonymous, good for you for trying to help your parents! They're definitely going to be in a tough situation. You don't say whether they have a pension or not. I'm going to assume that they don't, but hopefully they do. I've talked on this show, before, how as a country we need to start thinking that 70 is the new 65.
More and more people just really have to look at 70 as their retirement age, so you're right to suggest to your parents they should do this for at least 10 years, but I would say that's really only true for the 60-year-old. I'm going to assume that's the dad, since with most couples the husband is older. The 50-year-old is probably the wife. I'm assuming, here, the wife is only 50, so I would think that she also would have to work longer and should shoot for 70, as well. If they're at this age and they don't have anything saved, they just need to look at working longer.
I think a 60% stocks, 40% bonds portfolio is fine for the 60-year-old who's going to retire in 10 years, but if the 50-year-old ends up working for 20 years, I think you could go all stocks at this point, especially if you're just starting to save. You're just putting in a few hundred dollars a month. Whatever happens to the stock market in the next few years is actually not going to be that big of a deal because you're just starting out. You've got 20 years ahead of you and you're trying to catch up. I think an all-stock portfolio is perfectly fine for the next five years or so.
Another thing I would just say to them. I don't know if they own a home or not, but home equity is probably going to play a big role in their situation if they do, whether they downsize or they get a reverse mortgage. Another somewhat safe way to improve their prospects is to pay down the mortgage sooner. That way they own the home outright so that when they sell it they either get more equity or if they do a reverse mortgage they'll get more from it.