Is it too late to start investing?

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All the news outlets and financial resources say the same thing: start investing young – and the younger you are, the better. But what if you’re closer to 60 than 20?

Although starting to invest when you’re younger gives you the advantage of time, it’s never too late to start investing. And since most people (56% according to the National Institute on Retirement Security’s 2021 study) fear they won’t be financially secure in retirement, now might be a good time to start.

Remove your misconceptions

A mistake in calculating the amount of money you will need in retirement could have real consequences, such as living on a tighter budget or having to return to work. And with people living longer than ever, those miscalculations could be significant.

“Seniors are focused on the very short term,” Clark Kendall, certified financial planner and founder of Kendall Capital in Rockville, Maryland, said in an email interview. “The problem is that many people who retire in their 60s will live another 25 to 30 years and will need to maintain their long-term purchasing power.”

Retired people may think it’s too risky for them to invest. But if you have money saved beyond your emergency fund and don’t think you’ll need it in the next five years, investing it, regardless of your age, can help you enjoy the returns. long-term market and build wealth throughout retirement.

Another misconception people may have is that hoarding money is a good idea.

Adrianne Yamaki, a certified financial planner and founder of Strategic Wealth Capital in San Francisco, saw it with her mother, who preferred cash in the bank to stocks.

But money does not keep up with inflation.

“Even if you have the same dollar, it buys you less and less. And over a decade or two decades, you really decrease your purchasing power,” says Yamaki.

Know your strategy

It’s never too late to start investing, but that doesn’t mean you’ll have the same investment strategy as your 22-year-old niece. Young people have more time to ride out stock market ups and downs over time.

People nearing retirement or already retired may want to take a different approach.

“Those nearing retirement age (around 55 to 64), but who haven’t yet retired, still have time to build up their retirement savings,” Kendall said. “I recommend starting by increasing your 401(k), TSP [thrift savings plan]IRA or other retirement plan contributions if you are not already maximizing these investments.

You can also use catch-up contributions. While those under 50 can contribute up to $20,500 to their 401(k) in 2022, those 50 and older can contribute up to $27,000. IRAs also have a catch-up contribution: if you’re 50 or older, you can add an additional $1,000.

Roth IRAs, in particular, can be appealing to older investors because they don’t require you to withdraw money from your account at a particular age. If you invest using a traditional IRA, you will need to start taking the required minimum distributions from your account, usually at age 72.

If you have a good nest egg saved up, it may be worth considering less risky investments, such as bonds or CDs. But that doesn’t necessarily mean you have to give up the potential for a stock market return.

Stocks and equity mutual funds could potentially have a place in your portfolio, but perhaps in as small a proportion as a riskier portfolio. For example, Vanguard’s target date fund VTXVX, a fund recommended for people already in retirement, holds 45.46% of its portfolio in equities. Having a mix of different types of investments can help boost your portfolio diversification and lower your overall risk.

Invest with your HSA

If you have a Health Savings Account, or HSA, you already have a secret weapon in your investing arsenal: you can invest directly from your HSA. Unlike a Flexible Savings Account, or FSA, HSA funds roll over from year to year, so you can continue to build wealth for future medical expenses.

According to 2020 data from the Employee Benefit Research Institute, 91% of account holders held their balance in cash rather than investing it. This means most people with an HSA are missing out on potential long-term investment returns.

HSAs also have a triple tax advantage: HSA contributions are tax-deductible (or pre-tax if managed by an employer), growth is tax-exempt, and distributions are tax-exempt if you use them for eligible medical expenses.

Go get help if you need it

“I think a huge benefit for someone who is even starting to save for retirement late is that there are so many wonderful resources online, and so many fantastic fintech companies, that can help them get started. to build a savings or a portfolio in a very profitable way,” says Yamaki. “These didn’t exist 20 years ago.

One option might be to use a robo-advisor, an online service that helps you invest your money and often offers lower fees and educational tools to help you improve your investment knowledge.

If you want to invest but prefer to talk to a human being while you do so, you may want to consider working with a financial advisor.

An advisor can help you answer some important questions: Will you need to work longer? Should we delay Social Security? Can you still afford to travel? In addition, an advisor can help you find the investments that are right for you wherever you are in life and establish a retirement budget.

“There is no ‘right answer’ to investing, so always be sure to speak with your financial advisor to discuss the type of investment accounts that are best for you and your finances,” Kendall said. .

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