You are never too old to start investing
OOne of the best things about investing is that it’s something you can be involved in for a lifetime. Warren Buffett, for example, is 91 years old and still active in the game. What this means for you is simple: you are never too old to start investing.
Of course it’s a lot easier to build a big nest egg if you start young, but as long as you have more money than you strictly need to cover your expenses, you have the option of investing. Older people face slightly different rules regarding where and how they can invest than younger people, but the act of investing is open to anyone able to pony up the money.
Deadlines to remember
No matter how old you are, it’s important to keep the time horizon until you need the money in mind when looking to invest. This is especially crucial for older people who often don’t have the time to wait for cash back or a well-paying job to fall back on to spend money when the market moves against them.
A decent strategy is to divide your financial needs into three different time frames:
- Emergency room : You don’t know when you’ll need it, but you’ll be happy to have it in cash when you do.
- Over the next five years: The expected expenses that you will need money to cover in that time frame.
- Further in the future: Funds that can grow to help you cover your longer-term priorities.
Emergency money must be accessible. Yes, you will lose purchasing power over time due to inflation, but that money belongs in a savings account, penalty-free CD, or other easily accessible and highly secure source of cash. This is important because the market never provides guaranteed returns. If you need your cash urgently at a time when the market is down, being forced to sell stocks when they’re down to cover your costs can make it harder for you to participate in any rally that follows.
The money you need over the next five years doesn’t belong in stocks. Instead, a duration corresponded investment grade bond ladder, treasury bills or other safer investments would be more appropriate. Your potential returns will likely be lower than those of stocks, but you’ll have a greater likelihood that the money you need will be available when you need it. After all, as the first half of 2022 reminded us, in the short term stocks can go down as well as up.
Only money that you don’t think you need to spend for more than five years should be considered a candidate for stock market investing. If you are a retired senior, this may mean a combination of money for later during your retirement years, the money you want to leave as a charitable legacy and the money you intend to pass on to your heirs. So yes, even seniors in full retirement can justify investing at least a portion of their assets in more aggressive aggressive tools like stocks.
What rules should seniors know?
That said, there are a few rules that are different for seniors than their younger counterparts. First, if you’re on Medicare — even just Medicare Part A — you can no longer contribute to a Health Savings Account (HSA). This is because Medicare is not considered a high-deductible health insurance plan, and being enrolled exclusively in this type of health insurance is a prerequisite for contributing fresh money into an HSA.
Also, once you reach age 72, you must take Minimum required distributions of most qualified pension plans. These distributions must be taken from any traditional IRAs you have and also from any 401(k) plans you have, unless you are still employed by the company sponsoring that 401(k).
On a somewhat related note, to contribute fresh money to a 401(k) or IRA, you must be employed or working as an entrepreneur. You need sufficient working income to cover your contributions to these accounts, and you should always pay attention to these minimum required distribution rules. In other words, you could find yourself in a situation where you either can’t contribute to a tax-sheltered account, or you can contribute but need to quickly withdraw some of that money.
You will never have more time to invest than today
Despite the age-related differences seniors face, investing can still be a great way to build wealth for yourself, your heirs, and a longer-term legacy. Still, you will never have more time to invest than today, so if your income is more than your expenses, today is a great day to put your plan in place. Start now and improve your chances of seeing at least part of that legacy come to life.
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