I am 71 years old and I retired at 67. I am subject to social security and receive two pensions. It’s not a lot of money but I’m fine month to month.
Shortly before my retirement, I finally got rid of massive debts. I got caught up in the real estate crisis and had deep credit card debt in 2008 while managing two heavy mortgages on my own. Slowly and steadily, I’ve paid for it over the years. I should be out of debt for the next six months. My credit score is excellent, but debt for no retirement savings is allowed.
The question: is it too late to enter the investment world instead of just accumulating the small interest that arises from savings accounts at the bank?
We’re not talking about a lot of money. I’ve been putting $ 75 a month in bank savings for a number of years. Aside from a six month emergency fund, does it make sense for me to try and invest it rather than just bank it at this stage in life? If so, what approach would you recommend?
I could probably make more than $ 75 a month, especially with my credit card debts cleared. I could probably make an initial investment of maybe $ 5,000. I hope that there are still many years ahead of me.
I don’t think you are late to invest here. But my answer comes with one major caveat: I feel good when you start investing at 71 because in addition to Social SecurityYou have two pensions. Even if you say it is not much, it is a guaranteed income for life. As long as that money is enough to pay your bills, I might as well invest a little.
At 71, however, you have to invest differently than at 31 or 41. If you have at least a few decades to go before you retire, you can realistically expect several stock market crashes during your working years. This is fine for younger people as they will have plenty of time to recover from their money. But if you’re in your 70s, you won’t want investments that could easily lose 20% or 30% of their value in the short term.
Think about what your investment goals are. If you were to tell me that you would like to aggressively invest and double your money over the next few years, I would urge you to reconsider this plan. However, it sounds like your goal is to make a little more than you get from your savings account, and that is perfectly reasonable.
The challenge so many older investors face is that interest rates are historically low. This means that even high-yield savings accounts pay next to nothing. Traditionally safe investments preferred by retirees such as tie up and Certificates of deposit (CDs)also deliver super low interest rates that don’t keep up with inflation.
To make returns these days, you likely need to put some money into stocks. But before you think about it, I want you to focus on paying off your credit card debt. If you have a credit card balance with you, it will cost you an average of 16% per year. Aside from the extremely unusual stock market returns over the past year, this is more than you can make in a typical investment year.
As long as you keep your emergency fund intact, you can put the $ 75 per month you deposited on your credit cards, especially since your sources of income are guaranteed, and pay them off even faster.
Once you are out of debt, you can take your $ 75 per month plus what you spent on credit cards and start investing. The easiest way to do this is to open an account with one of the big brokers like Vanguard, Charles Schwab or Fidelity. (Neither of them paid me for it.)
You can easily open an account online and Use a robo-advisorThis is basically a computer algorithm that will invest your money for you. They answer a few questions about things like your investment experience and how you would react to losing money. Your answers, as well as your age and goals, will determine how your money will be invested.
Since you are retired, your money likely will be invested conservatively. That means you won’t get staggering returns. Remember that investing always involves risk. The value of your investments could decline in the short term, in particular. As a rule of thumb, you don’t want money invested in stocks that you are likely to need in the next five years.
I also hope that you have many years ahead of you – and at 71 it is certainly realistic to plan another two decades or even more in retirement. If you don’t need the money in the short term, it is not too late to start investing your way into a more convenient retirement.
Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].
This article originally appeared on www.thepennyhoarder.com