Is it too late for a 57-year-old single mom with no work pension and no savings to start investing in the stock market to generate a passive income for retirement?
I'm a single, self-employed, 57-year-old mother of four children. I am mortgage and debt-free but have no savings. I can work until age 70 and save 75 percent of my income, which is about $40,000 a year. After 13 years, that should be $520,000 total. I'm thinking about investing in long-term dividends to generate a passive income in retirement. I will need $30,000 per year as living expenses once I retire. I welcome any suggestions or guidance on how to invest my income towards a comfortable retirement.
First, I would try to figure out how much Social Security Income you would get when you retire at 70. If you work from 57 to 70, that is more than 10 years, so you should be eligible for full coverage. And the fact that you delay your claim till 70, you will have additional payout benefits. Explore here to estimate your Social Security Payouts: https://www.ssa.gov/planners/calculators/
In terms of saving, try to set up a Roth 401(k) and then add on a Roth IRA ($19,000 + 6,000). Although this is just $25,000, it is after tax contribution Before tax would be very close to $30,000.
As for what to invest in, since you should have at least 10 years of investment horizon. I would be less concerned about income generation. I would concentrate on growth, until at least 5 years before retirement. After that, I would start moving my investments into safer choices, such as intermediate bonds, rising dividend mutual funds, income and growth or balanced (30% to 50% equity type of investment.)
Assuming you get at least $10,000 from Social Security. A 4% yield on $500,000 investment would give you another $20,000 which adds to the total of $30,000 that you are looking for.
This is really the very bare minimum because we haven't taken into account of inflation and tax. However, this is still quite fantastic given the fact that you only start at the age of 57. One last comment, make sure you plan adequately for medical expense since that is always a big surprise element for people.
First of all, it’s never too late to start the savings. In your case, let’s do some math first, so you can see how much is needed and what amount you need to save. Then, we discuss where you put the money to get the most bangs for the buck.
You’re currently 57 and want to retire at 70. It means you have 13 years to grow your nest egg. When you mentioned you needed $30k for the annual living expenses, I subtract $15k from that $30k b/c I assume you can claim $15k Social Security benefits. Further to assume a 3% inflation from now to 70, an 8% rate of return, and you live to 90, you may need a lump-sum of $291,431 for retirement, which translates to an annual saving of $13,558, starting now.
As you can see, there are lots of assumptions here. Unless you have a face-time meeting with a CFP®, it’s really difficult to predict the true cost for a comfortable retirement. However, the good news is you already stated you can save $40k/year, which is more than the calculated amount. That shows you could potentially reach the goal you desired.
Now, let’s discuss what the best way (the most tax-efficient way) to save this money. Since you’re self-employed, you could start your own 401k and stash all that $40k as salary deferral and your own matching. The limit for a 401k/Profit-Sharing plan for 2019 is $55k, w/ an additional $6k age catch up. Thus, if you’re ambitious, you could save up to $61k for your retirement plan. Alternatively, you could start a Roth IRA w/ $6,500 for 2018 and $7k for 2019, and put the difference for your 2019 401k.
Again, all those wonderful ideas need to be confirmed by a financial planner who works with you. At least, you got a blue print to start. If I can be further assistance, you’re welcome to reach out. Meanwhile, best luck to you!
Dear is it too late for a 57 year old single mom with no work pension and no savings to start investing in the stock market to generate a passive income for retirement?
I applaud you for your vision, your work ethic, being mortgage free and debt free with a clear vision of your future towards a "comfortable retirement". Although you have no savings and no work pension as you state, the mental mindset and vision are what is necessary to accomplish anything in life. With this said, you are on track to reaching financial independence. You have mapped a strategy, saving 75% of your income annually going forward totaling approximately $40,000 annually. You state you wish to invest in long term dividends to generate a passive income in retirement. Be open to discussing with a trusted fiduciary advisor other opportunities to safely, securely and conservatively bring the returns that will make retirement a possibility at the time of your choosing. Remember balance is key, with four children time matters! (: Remember to stay healthy, be active and enjoy totally what this amazing life has to offer!
Again, I applaud your focus and determination to save toward retirement. You are unique. Do not stop and do not allow any life situation get you off focus. Journal this process and the sacrifice you are willing to make. This is the most important advice I can provide. This one step will place you ahead of most in the long term. Sometimes family and events in life get us off focus. Be determined to continue to maximize any and all contributions you make in a tax advantaged manner. You can do this! I believe in you.
Contribution to a 403(b) plan or the combination of two 403B plans (Traditional and Roth) occurs on an elective deferral basis the lesser of $18,500 for 2018 and $19,000 for 2019. Traditional 403B plan elective distributions are made with pre-tax dollars meaning the amount you contribute does not need to be reported as income when you file your taxes lowering your taxible income. Alternatively, Roth 403(b) plan elective distributions are made with after tax dollars with no immediate tax benefit. Advantages of the Roth 403(b) over Traditional 403B plan; both earnings and contributions are withdrawn tax-free. Please discuss this with a trusted advisor. Make the decision yourself taking into consideration your individual situation.
Consideration beyond maximum elective distribution from your income into the 403B account is where you must give thought. Care and study must be diligent and thorough to understand it is not just "saving for retirement" into the retirement account (403B) but how you are saving and where the money has been placed into which "selective basket" (ETF, INDEX, Mutual Fund, Single Stock) that matters. A trusted fiduciary (or two) will provide insight into where your money can work best for you over the next ten, twenty and thirty years. Please learn, get informed, read books, study financial leaders, such as Warren Buffett.
I am honored to hear you are dedicated to save for retirement. You and your family will benefit. It is with money that many issues of family dispute arise. If you share with your children the roadmap of debt maintenance and saving strategy you are taking to make your life easier in the long run sharing with them the power of compounding and the power of long term money accumulation this course of action will benefit your children and their families for generations to come. Do believe me. This is very powerful.
I advise you open additional savings/investment accounts which do not have tax advantaged savings benefits to accelerate your path to financial independence. Place the maximum possible into tax advantaged accounts and the remainder into non tax advantaged accounts. Such accounts are set up to withdraw funds similar to the 403B account(s) automatically each month; monies are electively withdrawn from your bank account on a regular basis into Exchange Traded Funds, Indexs, Mutual Funds, dividend generating funds to generate a passive income in retirement of your choosing so you will be in control of life and finances. Look at some applications www.Mint.com, www.PersonalCapital.com to set up the automation of money to be deposited into other select accounts of your choosing. Watch money grow.
First you are debt free. Second you are mortgage free. These two positions put you leagues above the rest of people. Be grounded in this knowledge and choose to grow from this point. There are great books about the clarity of vision to become Financially Independent. I feel you could write your own book as your course is stated with clarity and conviction. Never allow the advice of others stear you to risky investments. All investing is a risk and at 57 managing risk will be key. Consult with an advisor (or two, or three) to clearly and concretely understand the power of long term accumulation of assets. Make certain that the "picture" is to your benefit and no one else's. Your knowledge will empower you and place you in control of your future. Stay informed and stay aware.
Maintain a crystal clear picture of your roadmap. I wrote a book called "Tunnel Vision, a focused life" about my roadmap. It started out a memoir and morphed into a book where i elected to help others on their financial journey. I hope I have helped you even a little on your road to savings and retirement. All good energy and strength and focus your way. Do enjoy the challenge that saving brings. It is worth it!
I am here if you need additional financial questions answered or simply wish to chat!
All the very best to you!
Jan Attard, MBA, RIA, Wealth Accumulation Specialist
Technical & Fundamental Market Analysis
J. Oliver Maxwell, LLC
Tele. # 925-876-1377
First of all congratulations on your successes. It is no easy feat doing what you are.
It is never to late to start investing especially with a 13 year time horizon.
While dividends will be important in your retirement, 13 years is a long time before you require that income. I would recommend using a balanced portfolio to generate the best returns. Remember even though you are 57 years old you would still be in the wealth accumulation stage given the fact that you are just starting savings and have some time before you will require income from the money.
Additionally, you should look to save this money in the most tax efficient way possible. As a self employed individual you have the opportunity to save more money in a SEP IRA or solo 401k. This will help maximize the amount of money you have saved before you retire.
Best of luck and congratulations again.
It is never too late to start saving for a comfortable retirement. SInce life's expenses may have made it hard for you to save long ago, when the compounding growth of your investments may have really helped, now you will have to diligently save with the time you have. First, you should try to put aside 6-12 months of living expenses saved in something very dafe. This may be simply a savings account or short-term bond fund (not long-term or immediate-term).
A good place for you to start with your investing would be any of the low-cost providers such as Vanguard, Schwab or Fidelity. Each of these have resources to help you allocate your new savings into a simple choice of investments that can grow to eventually fund your retirement.
I caution against you thiking about "generating passive income" for your retirement, though. The dividends from a portfolio may be part of your living expenses one day, but you don't want to sacrifice any part of your growth potential today by focusing solely on dividends today. Invets for long-term growth today with a mix of investments- some of which may or may not provide dividends.
When you are ready to live off your savings, your account will one day slowly liquidate, providing you with the money you need to live both from dividend income and also from the growth in your investments each year.