Is It Too Late to Start Investing?

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

While starting to invest when you’re younger does give 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) are concerned that they won’t be financially secure in retirement, now might be a good time to start.

Miscalculating how much money you’ll need in retirement could lead to real consequences, such as living on a tighter budget or having to go back to work. And since people are living longer than ever, those miscalculations could be significant.

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

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

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

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

But cash doesn’t keep up with inflation.

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

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. Younger folks have more time to ride out the highs and lows of the stock market over time.

People who are near retirement, or who are already retired, may want to take a different tack.

“Those who are nearing retirement age (roughly ages 55 to 64), but have not retired yet, still have time to boost their retirement savings,” said Kendall. “I recommend starting by increasing your 401(k), TSP [thrift savings plan], IRA or other retirement plan contributions if you aren’t already maxing out those investments.”

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

Roth IRAs, in particular, may be attractive to older investors because they don’t require you to take money out of your account at any particular age. If you invest using a traditional IRA, you’ll need to start taking required minimum distributions from your account, generally when you turn 72.

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

Stocks and equity mutual funds could potentially have a place in your portfolio, but maybe just as a smaller percentage than a riskier portfolio might have. For example, Vanguard’s VTXVX target date fund, a fund recommended for folks who are already in retirement, has 45.46% of its portfolio in stocks. Having a mix of different types of investments can help strengthen your portfolio’s diversification and decrease your overall risk.

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. That 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 run through an employer), growth is tax-free and the distributions are tax-free if you use them for qualified medical expenses.

“I think a huge benefit to someone who’s 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 start to build savings or a portfolio in a very cost-effective way,” says Yamaki. “Those didn’t exist 20 years ago. I think that’s a fantastic thing to leverage.”

One option could be using a robo-advisor, an online service that helps you invest your money and often offers lower fees and educational tools to help you level up your investing knowledge.

If you’d like to invest but would prefer to talk with a human while you do it, 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 you delay Social Security? Will you still be able to afford travel? And an advisor will be able to help you find investments that are right for wherever you’re at in life, and establish a retirement budget.