Is 50 Too Old To Start Investing?

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.

Is 50 Too Old To Start Investing

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.

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