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
(If you have additional questions about investing or retirement, this tool can help match you with potential advisors.) 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.
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.
Is it too late to start saving for retirement at 65? ›
So no, it isn't too late to start. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now. Regardless of what you commit to saving now, it is unlikely that your savings alone will support you. I don't say that to be discouraging.
At what age should you get out of the stock market? ›
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.
How much money should I have at 65? ›
Experts say investors usually need about 80% of their pre-retirement income in retirement. So if they earned $100,000 per year pre-retirement, they'd need $80,000 per year in retirement.
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.
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).
Where is the safest place to put your retirement money? ›
The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.
How many people have $1,000,000 in savings? ›
In fact, statistically, just 10% of Americans have saved $1 million or more for retirement. Don't feel like a failure if your nest egg isn't quite up to the seven-figure level. Regardless of your financial position, however, you should strive to save and invest as much as you can.
What is the $1000 a month rule for retirement? ›
The $ 1,000-a-month rule for retirement states that you can draw $1,000 per month from your retirement account for every $240,000 saved without decreasing your principal investment. Knowing how much retirement savings is enough is challenging and as you look for answers you might come across the $1,000 a month rule.
Individuals who have not saved for retirement and who still own homes can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.
Can I lose my IRA if the market crashes? ›
It is possible to lose money in a Roth IRA depending on the investments chosen. Roth IRAs are not 100% safe, but they offer the potential for growth over time. Market fluctuations and early withdrawal penalties can cause a Roth IRA to lose money.
What is the 3-5-7 rule in trading? ›
A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.
How much should a 70 year old have in the stock market? ›
If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.
Is 65 too old to start investing? ›
It's never too late to start investing and managing your money. But I don't want to sugarcoat it. If you're planning to invest for retirement, getting the ball rolling in your late 60s certainly limits your options.
What does an average older 65 household spend most of its money on? ›
Housing. Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees.
