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.
Is it too late to invest at 65? ›
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.
What is the best investment for a 65 year old? ›
These seven low-risk but potentially high-return investment options can get the job done:
- Money market funds.
- Dividend stocks.
- Bank certificates of deposit.
- Annuities.
- Bond funds.
- High-yield savings accounts.
- 60/40 mix of stocks and bonds.
Generally Recommended Allocation for 65-Year-Olds
Traditionally, financial models recommended that investors subtract their age from 100 to determine the percentage of their portfolio that should be in stocks. For example, if you were 65, you should have 35% in stocks under this model, as 100 minus 65 equals 35.
At what age is it too late to invest in the stock market? ›
Here's the real truth: It's never too late to start growing your money. And while time does matter when it comes to investing, it doesn't need to matter in the way you might think. You may be surprised at the impact just a few years can have on your savings.
Can I retire at 65 with no savings? ›
You can still live a fulfilling life as a retiree with little to no savings. It just may look different than you originally planned. With a little pre-planning, relying on Social Security income and making lifestyle modifications—you may be able to meet your retirement needs.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
How much cash should a 65 year old have? ›
By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.
How much should a 65 year old have in savings? ›
Median retirement savings balance by age
| Age group | Median retirement savings balance amount |
|---|
| 35-44 | $45,000. |
| 45-54 | $115,000. |
| 55-64 | $185,000. |
| 65-74 | $200,000. |
2 more rowsMay 7, 2024
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
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.
What should a 65 year old portfolio look like? ›
In your later years, a conservative allocation of 30% cash, 20% bonds and 50% stocks might be appropriate. Diversified portfolios typically include a core of at least 50% stocks in part because equities alone offer the potential to generate long-term returns exceeding inflation.
When to quit investing? ›
When, or if, you should stop investing in stocks is a personal decision that will vary from person to person. The right answer depends on a wide variety of factors, from your life expectancy to your health situation to your own personal risk tolerance.
Where to invest money at age 65? ›
If you're near or in retirement, 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 for your circ*mstances.
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.
Should retirees get out of the stock market? ›
Yes, and Here's How. You might have switched to the spending phase of your retirement plan, but that doesn't mean you shouldn't invest any longer, or plan for market volatility. Investing is a smart financial move to make regardless of what stage you're at in life.
How much should I have in stocks at age 65? ›
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).
How much do most 65 year olds have saved? ›
Median retirement savings balance by age
| Age group | Median retirement savings balance amount |
|---|
| 45-54 | $115,000. |
| 55-64 | $185,000. |
| 65-74 | $200,000. |
| 75 and older | $130,000. |
2 more rowsMay 7, 2024
As there's no magic age that dictates when it's time to switch from saver to spender (some people can retire at 40, while most have to wait until their 60s or even 70+), you have to consider your own financial situation and lifestyle.
