At age 50, is it to late to save for retirement?

[Guest Ann Harrison]

I am 50, annual income 10,000. My husband is 53 annual income 40,000 (25,000 taxable). Neither of us have a retirement plan other than Social Security. We could probably invest between 3000 and 5000 a year until he reaches 65(12yrs), Would an IRA or Roth IRA be a good thing to get or is there any hope for us this late in the game? Thanks

[BPickerCPA]

It's never too late to save. You just to figure out which is the best vehicle for you.

[John G]

By the information you have provided, both you and your husband should be eligible for a Roth IRA. If you each open a Roth account and put 2,000 per year for the next 12 years you will have invested 48,000 (2k x 12 x 2 people). If you invest these funds a general stock fund or stock market index fund and you get a little over 10% you will accumulate $100,000 by the time you retire. It is possible that you could draw $8,000 per year to supplement social security. In your example, 4k set aside today gives you 8K in each retirement year. If you use the Roth, you will not have to pay any taxes on the IRA dispursements.

You and your husband should go to a social security office and request a benefit statement. It takes a few weeks and is a free service. You will then be able to evaluate the annual income you might have in retirement.

Ussually, your expenses drop off after age 50 because you may burn the mortage, kids leave home, few needs for furniture, etc. It is pretty common for couples to try to sock away a good amount in the last decade before retirement to provide some "padding". Remember, if you own a home you are building equity as you pay off the mortgage... this is one potential asset you did not mention.

Good luck.

[Guest Ann Harrison]

Thanks for your info. It helped alot. Couple more questions.. Does it matter where you purchase the Roth, do different places have different interest rates, and do you invest the money in index fund at the same time as you're saving it or after the 12 years and it has accumulated into one large lump sum? Sorry for the ignorance, this is all kind of scary to me.

[Guest PMcMullen]

Does it matter where you purchase the Roth, do different places have different interest rates

You first need to consider 'what' you want to invest in. Different investments will offer different returns. Stocks typically return more than bonds, for example. Even though you're relatively close to retirement, you should still have a significant portion of your assets in stock funds, since you should plan for at least 20 years in retirement.

You should also consider fees. Vanguard has some of the lowest fund fees in the industry. Their S&P 500 Index Fund has 0.18% fees, while many funds charge between 1 and 2 percent.

Different fund managers will have different results, even when investing within the same sector. You want to be sure to compare funds with similiar objectives.

You mentioned index funds. Many argue that these are an excellent investment, since they typically have much lower fees, and in most cases outperform actively managed funds.

and do you invest the money in index fund at the same time as you're saving it or after the 12 years and it has accumulated into one large lump sum?

The money is invested as you contribute it.

[John G]

Ann,

Please read back through this site to posts that are about "just getting started". You will see a lot covered by me.

Your first step is to make the commitment to set aside dollars. The next step is to select a custodian: choices include banks, mutual funds or fund families, on line brokerages, local brokerages, etc. Each will offer multiple types of investements and have different cost/fee structures, and levels of service. If you decide on a mutual fund go with a NO LOAD version with annual expenses below 1%. LOADED funds charge either immediate or termination fees that erode your return. You can change your decision after you build a base of experience. Try reading the March issue of Consumer Reports which covers the basics of mutual fund investing for retirement... and they narrow the choices to about 100 good funds.

I recommended a broad based stock mutual fund as they represent a portfolio of many stocks. Of these, index funds have the lowest costs. Most funds will allow you to start with a $1000 deposit, or even less if you commit to a fixed monthly contribution schedule (which is a dollar cost averaging approach). You want to put your money to work immediately. If you are upset about making choices when you are not informed, then put the initial funds in a money market type account and start your education. Then a year from now you will certainly be a better position to make choices. Just don't go the money market or CD route with all your funds FOREVER as you will barely stay ahead of the underlying rate of inflation.

The key is to get started, pick something relatively conventional (only you can decide on your risk tolerance) and start spending 1 hour or more each month reading to learn about investing. I do not recommend that you let someone else be in charge of your investments as it is your money and you should know what you are doing with it. No one will ever have as much at stake as you will!

You might also want to consider joining an investment club. These range from awful to very positive learning experiences. Ask your friends if they know of any they would recommend.