There are many circumstances in life where we may not be fortunate enough to have started serious retirement investing until late in life. Never fear. Beginning to invest, or increasing your investments at age 50 may bring some unexpected benefits.
First, you have the benefit of Wisdom, the first step in the Cycle of Positive Wealth. Years of experience in work, savings, mortgages, etc., may help to bring you a sense of your strengths and weaknesses when it comes to investing. You still need to increase your financial Intelligence if you have never invested, and you still need to be able to put together a plan. Fortunately, your years of experience provide you with a realistic view of things that will increase the quality of your plan.
Using a reasonable expectation of average income for a 50-year old person, we can see how “reasonable” to “low risk” investing will create enough savings for a comfortable retirement. Here is a good representation of an average 50 year old who wants to start contributing the maximum allowable amount:
Starting Age – 50
Retirement age – 65
Income – $60,000
401k Maximum Annual Contribution – $22,000
Employer Match – 50% on 6% of salary
Expected return on Investment – 6%
In 15 years, a 50 year old can potentially save $740,000 by investing conservatively. This does not account for probable upward allowable maximum contributions. Add to that a Roth IRA account. In 15 years using the same criteria and an annual $6,000 contribution, as opposed to only $5,000 for those under 50, that person could have an additional $148,000 in savings. Between both the Roth IRA and the 401k, this can potentially provide almost $900,000 in retirement savings in 15 years.
If you were to maintain only the current maximum federal contribution of $16.500 per year into your 401K, your total savings in that fund would be $569,629. Not bad, but you would miss out on that additional $171,076.
These scenarios do not account for any sudden market drops close to your retirement age. Your ability to think more conservatively as you get close to retirement will help preserve your savings. Even after you have been drawing money from your accounts a year after retiring, most of your money will still be in an investment account. You still need to have a long-term view, as you still want your investments to garner good returns throughout the remainder of your life.
If you have been a diligent saver in your retirement accounts since your 20’s pr 30’s, you still must take advantage of the ability to increase your investment savings.
For more insight on ways to make investing easier, and to gain a higher yield on your investments, read Wealth Virtues. The book, Wealth Virtues by James Ward of Poor Richard Web Press, outlines the practice of Dr. Franklin’s virtues (Temperance, Silence, Order, Resolution, Frugality, Industry, Sincerity, Justice, Moderation, Cleanliness, Tranquility, Chastity, and Humility) as they apply to achieving wealth using the Cycle of Positive Wealth© (Wisdom, Intelligence, Planning, Action, Investing, Inflow, and Credit).