While 65 is later than most people begin investing for retirement, it’s not too late. The question is not whether to invest but how to invest to increase your chances of achieving your financial retirement goals. That’s going to require answering a number of questions, including how healthy you are, how long you can expect to live, whether you still work and can continue to work, what other income sources such as Social Security benefits you can tap and how your retirement expenses tally up. From there you can develop a retirement budget and investment strategy that can help you achieve a comfortable and secure retirement.
A financial advisor can help you pull together a retirement strategy appropriate for your circumstances and goals. Use this free tool to match with an advisor.
Initial Steps to Investing
The first thing to do when beginning investing for retirement at any age is to assess your situation. Begin by evaluating your income and expenses in retirement. Owning your home mortgage-free helps limit expenses, because housing is the largest single cost for most retirees. Start there and make up a retirement budget, as this will guide your investment strategy. Don’t neglect costs for Medicare premiums now that you’re 65 and consider whether you will need long-term care insurance.
Another key question is how long you expect to live, since that’s how long your money needs to last. Planners may use the same maximum age, typically 90 or even 100, for all clients. Your own life expectancy may be more or less depending on your family and personal health history. For a quick and simple answer, Social Security’s lifespan calculator indicates a typical 65-year-old man can expect to live about 19 more years while a woman of the same age can expect to live about 22 years.
You can also shrink the number of years your savings have to support you if you keep working past usual retirement age. In addition to reducing the amount you’ll have to take from savings to pay retirement expenses, this can let you delay claiming Social Security benefits. Unclaimed benefits increase by as much as 32% when claiming at age 70 compared to claiming at age 62. A higher Social Security benefit can have a sizable impact on your comfort in retirement.
Set up an account at Social Security’s website, and calculate how much your Social Security will be. Also evaluate other sources of income, such as pensions, that you may have. Between maximizing government benefits and extending your working years you can improve your chances of having a financially secure retirement. A financial advisor can help you navigate your Social Security benefits and other retirement considerations.
Late Retirement Investing Strategy
Armed with the number of years you expect to spend in retirement, estimated expenses and sources of non-investment income, it’s time to plan your investment strategy. Standard savings accounts are suited for a rainy day fund with three to six months of basic living expenses. But most of your assets will likely be re-deployed to some combination of stocks and bonds or other fixed-income investments that can generate more return.
Deciding how to allocate your portfolio between stocks and bonds depends on your risk tolerance and investment horizon. Stocks have higher growth prospects but can be riskier. Bonds can produce income and provide a stabilizing influence for the higher risk portion of your portfolio in stocks. Typically, the older you get, the less emphasis you put on stocks, but most portfolios have at least some stocks.
A typical 65-year-old might invest 60% of their investment fund in a diversified mix of stocks and 30% in a similarly diversified selection of bonds with the remainder in high-yield savings, certificates of deposit or other forms of cash. You can purchase individual securities but shares of a mutual fund or exchange-traded fund with the desired asset mix will likely be more convenient and offer more diversification. You may also want to consider annuities, which can generate guaranteed income.
Late Retirement Investing In Action
If you continue working for five more years without claiming Social Security, those benefits will be at their maximum. By that time, assuming a steady 7% annual rate of return, your $85,000 will have grown to $120,619. Simulations indicate you will be able to withdraw funds at the safe withdrawal rate of 4% of the balance adjusted annually for inflation, equal to $4,825 the first year, with little chance of running out of money in your lifetime.
If your retirement budget doesn’t balance, you might try investing more aggressively, which could generate more growth (but may also come with more risk). You could extend the years you plan to work for income for a few additional years to allow your investment fund to grow more. You could also relocate to a less expensive location to reduce your living expenses. Consider speaking with a financial advisor if you have questions or want a professional opinion on your retirement investment strategy.
Bottom Line
Starting to invest for retirement at age 65 with $85,000 will limit your ability to take advantage of long-term investment growth, but you can make significant progress in the years you have left before leaving the workforce. You can start by carefully assessing your financial and health situation, then starting to invest in a manner that suits your risk tolerance and time horizon. It’s not too late to make progress toward a more secure retirement by investing the funds you have available.
Tips
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While future returns are necessarily uncertain with most investments, that doesn’t apply to a certificate of deposit. With SmartAsset’s CD Calculator you can predict with confidence how much your CD will have earned when it matures.
- Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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