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
It's never too late to start investing, but starting in your late 60s will impact the options you have. Consider Social Security strategies, income sources and appropriate asset allocation. A financial advisor may be able to help you project out your investment and income plan into the coming decades.
What is the best investment for a 65 year old? ›
For individuals nearing or in retirement, investments such as bonds, annuities, and income-producing equities can offer additional retirement income beyond Social Security, a pension, savings and other investments. A financial professional can help you determine the most appropriate retirement income strategy.
Should a 65 year old be in the stock market? ›
Near and current retirees are often encouraged to invest their money so it's able to grow. If you're 65, it means you may want to keep a notable portion of your portfolio in safer assets. It can still make a lot of sense for a 65-year-old to own stocks.
What should the asset allocation be for a 65 year old? ›
For most retirees, investment advisors recommend low-risk asset allocations around the following proportions: Age 65 – 70: 40% – 50% of your portfolio. Age 70 – 75: 50% – 60% of your portfolio. Age 75+: 60% – 70% of your portfolio, with an emphasis on cash-like products like certificates of deposit.
Is it too late to save 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 does the average 66 year old have in savings? ›
According to data from the Federal Reserve's most recent Survey of Consumer Finances, the average 65 to 74-year-old has a little over $426,000 saved.
Where is the safest place to put your retirement money? ›
Plenty of safe places exist to put your money as a retiree. If you don't mind keeping it locked up for a specific time period, Treasuries and CDs are great ways to get a competitive return. Bond ETFs work well if you want to invest in a variety of bonds.
When should seniors stop investing? ›
A general rule of thumb says it's safe to stop saving and start spending once you are debt-free, and your retirement income from Social Security, pension, retirement accounts, etc. can cover your expenses and inflation.
How much money do I need to invest to make $1000 a month? ›
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.
What is a balanced portfolio for a 65 year old? ›
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
60s (Ages 60-69)
| Age | $50,000 salary | $200,000 salary |
|---|
| 62 | $435,000 - $530,000 | $2,420,000 - $2,945,000 |
| 63 | $455,000 - $555,000 | $2,520,000 - $3,065,000 |
| 64 | $475,000 - $580,000 | $2,625,000 - $3,185,000 |
| 65 | $500,000 - $605,000 | $2,735,000 - $3,305,000 |
3 more rowsConventional 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.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
What is the $1000 a month rule for retirement? ›
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).
How to start over at 65 with no money? ›
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
What happens if you have no money to retire? ›
If you're an average earner, Social Security will only replace about 40% of your former income. So if you retire without any savings, you might end up effectively taking a 60% pay cut. At the start of 2023, the average Social Security benefit was $1,827 a month. That's an annual income of a little less than $22,000.
What is the safest investment with the highest return? ›
Overview: Best low-risk investments in 2024
- High-yield savings accounts. ...
- Money market funds. ...
- Short-term certificates of deposit. ...
- Series I savings bonds. ...
- Treasury bills, notes, bonds and TIPS. ...
- Corporate bonds. ...
- Dividend-paying stocks. ...
- Preferred stocks.
Housing. Unless you own your home and you've managed to pay off your mortgage, housing will be your biggest retirement expense. The BLS report found that, on average, people 65 and older spend $18,872 annually for housing. This represents 36.2% of your annual expenses.
Which investor had the highest balance when they turned 65 in this example? ›
Which investor had the highest balance when they turned 65 in this example? In this example, Chris, who invests $5,000 annually between the age of 25 and 65 had the highest balance when he turned 65.
How to retire at 65 with no 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.
