Playing Catch-Up With Retirement Investing

Dear SmallIvy,

Hi, thank you for this blog. I am 53 and have always “lived for today” and seriously regret it. The only debt I have is a mortgage which will be paid off in February of 2014. I am very interested in the market but know NOTHING about it. I don’t even have a savings account but my mother’s estate is in probate and will be settled by June 2014. I don’t know how much I will inherit but just say the available cash is $10,000, where should I invest? Also, could you give me an idea of how to recoup years of financial gain that are lost? Thanks in advance.



Dear Lynne,

I’m sad to hear you say that you regret “living for the day” because there is certainly something to be said for doing so to some degree.  There are things you can only do (or at least do right) when you are young.  I certainly don’t advocate squirreling every dollar away and waiting for retirement to start living.  I just advise taking care of necessities and making little sacrifices (like eating in fairly often or buying used cars instead of new) appropriate to your life that will allow you to take advantage of the power of investing and compounding.

That said it is definitely a lot easier to invest and grow wealth when you are young than when you are old because time reduces risk and doing really well in investing involves putting money into more risky things but doing so for long periods of time to reduce your risk.  It is easy for someone who is 20 to fund their retirement by simply putting a few hundred dollars away each month into a 401k and investing it in stock mutual funds.  It is much more difficult for someone who is in their 50’s because they need to put a lot more away and be more cautious with investments, but there is still the potential to retire a millionaire with some discipline.  For some one in their 60’s, there is almost no chance without a huge income and the willingness to live like a college student for a few years.

As far as where to invest, with your need to preserve what you have while still trying to grow wealth, combined with your lack of knowledge about investing, the only way to go is mutual funds.  Individual stocks would be too risky and require you to gain too much knowledge to know how to pick stocks.  With mutual funds the secret is to buy funds with low fees and costs (less than 0.5% of assets), which means index funds.  The best funds are those that are “plain vanilla,” such as large cap funds or small cap funds, rather than exotic funds with some sophisticated trading strategy.  You would also want to include income stocks and bonds in your portfolio to help dampen the fluctuations in value that an all-stock portfolio would produce.  Again, there are bond and income mutual funds.

Finally, the biggest and best tool you have right now is the ability to generate an income through work.  If you can increase your income through job promotions, working paid extra hours, possibly working a second job for a period of time or during holidays, and maybe finding a side business that can generate some income you still have time to save up enough to have a comfortable retirement.  This is if you combine increasing your income with cutting your expenses because you will never be able to out earn your ability to spend.  Paying off your mortgage is a good first step since now you can direct that money into savings and investments so long as you don’t add new expenses to replace your mortgage payment.  If you never spent time living like a broke twenty-something, maybe this is the time to do so for a period.  It will beat living in poverty during the long years of retirement.



Contact me at, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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