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Dear Penny: Am I too old to start investing at 71?

The fact that the letter writer has pension payments coming in affects the answer.
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Published Apr. 5
Updated Apr. 5

Dear Penny,

I’m 71 years old and retired at 67. I’m on Social Security and receiving two pensions. It’s not a lot of money but I’m OK from month to month.

I finally dug out of massive debt just before retiring. I was caught in the housing bust in 2008 and went into deep credit card debt managing two hefty mortgages on my own. Slowly and steadily, I have paid it down over the years. I should be credit card debt-free in the next six months or so. My credit score is excellent, but debt allowed for no retirement planning.

The question: Is it too late to enter the investment world, rather than just accumulating the pittance of interest that comes from having savings accounts at the bank?

We’re not talking about a lot of money. I’ve been putting $75 per month into bank savings for several years now. Six-month emergency fund aside, does it make sense for me to try investing it rather than just plain banking it at this stage of life? If so, what kind of approach would you recommend?

I probably could do more than the $75 a month especially once the credit card debt is done. I could probably make an initial investment of maybe $5,000. I’m hoping there are a lot of years of life ahead of me.

-B.

Dear B.,

I don’t think you’re too late to start investing here. But my answer comes with a big caveat: I’m comfortable with you starting to invest at 71 because in addition to Social Security, you have two pensions. Even though you say it’s not much, that’s guaranteed income for life. As long as that money is enough to pay your bills, I’m fine with you investing a little.

But at 71, you need to invest differently than you would if you were 31 or 41. When you have at least a couple decades left until you retire, you can realistically expect several stock market crashes to occur during your working years. That’s okay for younger people because they have plenty of time for their money to recover. But when you’re in your 70s, you aren’t going to want investments that could easily lose 20 or 30 percent of their value in the short term.

Think about what your goals are in investing. If you were to tell me you wanted to invest aggressively and double your money in the next few years, I’d urge you to rethink that plan. But it sounds like your goal is to earn a bit more than you’re getting from your savings account, and that’s perfectly reasonable.

The challenge now that so many older investors face is that interest rates are historically low. That means even high-yield savings accounts are paying next to nothing. Traditionally safe investments favored by retirees, like bonds and certificates of deposits (CDs), are also yielding super low interest rates that aren’t keeping up with inflation.

To generate any kind of returns these days, you’re probably going to have to put some money in stocks. But before you think about that, I want you to focus on paying off your credit card debt. When you carry a credit card balance, it costs you about 16 percent each year on average. Putting aside the highly unusual stock market returns of the past year, that’s way more than you can earn during a typical year of investing.

As long as you leave your emergency fund intact, you could put the $75 a month you’ve been banking toward your credit cards, especially since your sources of income are guaranteed, and pay them down even faster.

Once you’re debt-free, you can take your $75 a month plus what you’ve been putting toward credit cards and start investing. The simplest way to do this is by opening an account at one of the major brokerages, like Vanguard, Charles Schwab, or Fidelity. (None of them paid me to say that.)

You can easily open an account online and use a robo-advisor, which is basically a computer algorithm that invests your money for you. You’ll answer some questions about things like your investing experience and how you’d react to losing money. Your answers, along with your age and goals, determine how your money gets invested.

Since you’re retired, your money will probably be invested conservatively. That means you’re not going to get any jaw-dropping returns. Just remember that there’s always risk with investing. The value of your investments could drop, especially in the short term. A common rule of thumb is that you don’t want money invested in stocks that you expect to need in the next five years.

I, too, hope you have many years ahead — and at 71, it’s certainly realistic to plan for another two decades or even more in retirement. If you don’t need the money in the short term, it’s not too late to start investing your way to a more comfortable retirement.

Robin Hartill is a certified financial planner and a senior writer at the Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.