For many reasons, you may not start saving for retirement until your 40's or even your 50's. However, it is actually never too late to start saving for retirement. And even if you are 50 years old, it is never too late to start investing.

I say this because saving for retirement and investing are not exactly the same thing. They are related, but saving for retirement is managed more by your employer. Although you may have choices, they are often limited. Investing is more directed by you. In my opinion, you need to do both, as saving for retirement alone may not be enough to achieve financial independence.

Saving for Retirement at 50 – Are You Too Old to Start Investing?

When you save for retirement, you are saving for when you do not have a regular W-2 from an employer or 1099 income as a contractor. Instead, you are taking your required minimum distribution from your retirement plan, which will most likely be a 401(k) plan and an Individual Retirement Account (IRA).

Few of us have pensions. We won’t consider Social Security here, but you are also putting money away for that, too. Your choices in a 401(k) plan are often limited by your employer. If you are lucky, you may have a good plan with index or target date funds with low expenses.

Now the real question, can you start saving for retirement at 50 and still have enough to retire by 65? It is much tougher to achieve this, but even if you are putting away $3000 per year, you can end up with over $100 thousand.

Let’s assume that you are earning $60 thousand, you contribute 5% of that, your salary increases 2% annually, and your annualized rate of return is 7%, and you have $1,000 in your 401(k) to start with. We will also assume that your employer match is 50% and ends at 3%. By the time you are 65 you will have a little over $117,000. You can bump this up a bit if you are frugal and can contribute 6%. Then you are at a little over $134,000 by age 65. I used the handy AARP 401(k) calculator for this. You can play around with the numbers for your own personal situation.

The reality is that that time and the power of compounding matters a lot when saving for retirement. If you start saving for retirement five years earlier at age 45, you would have a little over $196,000 at age 65. If you start 10 years earlier at age 40, then you would have over $311,000 at age 65. You can play around more with the starting age, but it is clear that the earlier you start saving for retirement, the better off you are. You can check the the net worth targets by age.

Investing at 50 Years – You Are Never Too Old To Start

50 years is not too old to start investing. In many cases, you may be saving for retirement from a younger age, you already have an emergency fund, your student loans are paid off, and your mortgage may be half paid already.

By this point in your life, you may have had some decent raises or job changes that resulted in nice salary jumps, or you may be in a position that gives you an annual bonus. You may have extra cash that can be directed towards investing. As you are well aware, my personal favorite is dividend growth stocks.

Today, the cost of buying dividend growth stocks has been reduced to almost zero with no commissions. I remember paying $21.95 per trade in commissions when I first started buying stocks. But at $0 for commissions, you can buy smaller blocks of stocks much more easily without raising the cost basis.

So, for arguments sake, let’s say that you are buying $300 of stock per month starting at age 50. The stock share price is $50 with a dividend yield of 3%, the dividend grows by 4% per year, and the share price appreciates 5% annually. Your dividend tax rate is 15% and you reinvest the dividends that you receive.

At age 65, you have a little over $103,000. The annualized rate of return is 6.14%; not great, but we were very conservative in our assumptions. But the best part is that you are getting over $5,700 in dividends each year. I used the dividend calculator at MarketBeat for this.

Final Thoughts On Is 50 Years Too Old to Start Investing

Overall, I think the general path many people follow is to start saving for an emergency fund, then save for retirement, and then investing. There are advantages and a few risks of dividend growth investing that I have outlined previously. But the nice part is clear from the given examples. After 65 years, you are getting $5,700 in dividends, which is more than 4% of $103,000, if you follow the 4% rule.

Getting to the first $100,00 is the hardest, but it snowballs after that as the power of compounding takes effect. So, the answer is no, 50 years old is not too old to start investing.

Chart or Table of the Week

Stocks have bounced back and then some since the near-term low in early-March 2021. Many stocks that were punished from 2019 to 2020 are doing well. Tech stocks have declined, but coming down from a P/E ratio of ~100 to ~70 does not make them undervalued. However, there are still stocks to find.

In this text, I will highlight 3M Company (MMM), which I am long on and have written about extensively in the past. The company is one of the largest industrial conglomerates in the U.S. with a market capitalization of over $111 billion and sales of over $32 billion in 2020. 3M has well-known brands including Post-it, Filtrete, Command, Scotch, Nexcare, Ace, Scotch-Brite, and others.

The stock is yielding about 3.1% and the payout ratio is decent at about 62%. 3M is well known as a Dividend King with 62 years of consecutive annual dividend growth.

Source: Stock Rover

Dividend Increases and Reinstatements

• Globe Life (GL) hiked the dividend by 5.3% to $0.1975 from $0.1875 per share quarterly. The forward yield is 0.8%. This is the 15^th consecutive annual increase. Globe Life is a Dividend Contender.
• Hingham Institution for Savings (HIFS) raised the dividend 4.3% to $0.49 from $0.47 per share quarterly. The forward yield is 0.7%. This is the tenth yearly increase in a row. Hingham is a Dividend Contender.
• Bank OZK (OZK) increased the dividend 0.9% to $0.28 from $0.2775 per share quarterly. This forward yield is 2.75%. This is the 25^th straight annual increase. Bank OZK is a Dividend Champion.

Dividend Cuts and Suspensions List

I updated my dividend cuts and suspensions list at end of March. The number of companies on the list has risen to 518. We are well over 10% of companies that pay dividends, having cut or suspended them since the start of the COVID-19 pandemic. There were no new companies to add to the list this past month (March 2021).

Market Indices

• Dow Jones Industrial Averages (DJIA): 33,153 (+0.24%).
• NASDAQ: 13,480 (+2.60%).
• S&P 500: 4,019 (+1.14%).

Market Valuation

The S&P 500 has been trading at a price-to-earnings ratio of 40.9X and the Schiller P/E Ratio has been at about 36.2X. These two metrics have been up throughout the past week.

I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued based on historical data. Note that we are near 40X and valuation levels are near the top of the dot-com era.

S&P 500 PE Ratio

Source: multpl.com

Shiller PE Ratio

Source: multpl.com

Stock Market Volatility – CBOE VIX

The CBOE VIX was down this past week to 17.33. The long-term average is approximately 19 to 20. This is the first time since the pandemic started that the CBOE VIX went below the long-term average.

Source: Google Finance

Fear & Greed Index

I also track the Fear & Greed Index. The index has recently stalled on Neutral at a value of 58. This is up 6 points from the past week. There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.

Junk Bond Demand is indicating Extreme Greed. Investors are accepting 2.00% yield over investment grade corporate bonds. The spread is down from recent levels, indicating that investors are taking on more risk.

Safe Haven Demand is indicating Extreme Greed. Stocks have outperformed bonds by 7.76% over the past 20 trading days. This is close to the strongest performance over the past two years as investors rotate back into stocks after a period of weakness. Market Momentum is indicating Greed. The S&P 500 has been 8.31% over its 125-day average. This is above the average over the past two years.

Market Volatility is set at Neutral. The CBOE VIX reading of 17.33 is a neutral reading. Stock Price Strength is signaling Fear. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the upper end of its range.

Put and Call Options are signaling Fear. In the last five trading days, put option volume has lagged call option volume by 52.54%. This is among the highest level of put buying in the past two years. Stock Price Breadth is indicating Extreme Fear, as advancing volume is 4.97% more than declining volume on the NYSE. This is at the lower end of its range over the past two years.

Source: CNN Business

Economic News

The Conference Board Consumer Confidence Index increased to 109.7 (1985=100) in March, up significantly over February’s 90.4 reading. The reading marked the third consecutive monthly increase, and it is now at its highest level since March 2020. The percentage of consumers expecting business conditions to improve over the next six months rose to 40.8%, while those expecting business conditions to worsen declined to 11.0%.

The survey showed consumer optimism about the labor market, with more saying jobs were “plentiful” rather than “hard to get,” with 36.1% expecting greater job availability in the next six months and 13.4% anticipating fewer jobs.

The Energy Information Administration report for the week of March 26 showed that U.S. crude inventories (excluding those in the Strategic Petroleum Reserve) decreased by .9 million barrels to 501.8 million barrels. Crude oil inventories are running at a level 6% higher than the five-year average for this time of year. Refineries were operating at 83.9% of their operable capacity. Gasoline inventories dropped by 1.7 million barrels and are about 4% below the five-year average for this time of year.

The U.S. Bureau of Labor Statistics reported that employers added some 916,000 nonfarm jobs in March, as the unemployment rate slipped to 6.0% from 6.2% in February. This is the best jobs report in seven months, showing optimism as the U.S. starts to climb out of the pandemic.

Job growth was widespread, led by gains in leisure and hospitality (+280,000), public and private education (+190,000), construction (+110,000), professional and business services (+66,000), and manufacturing (+53,000). In addition, February’s already strong employment figures were revised (+89,000) to a 468,000 gain, and January was revised (+67,000) to 233,000. The US economy is tracking at 8.4 million fewer jobs now than it did pre-pandemic.