Starting Late? KISS

I was recently approached by a cousin in her mid-40s who inquired about investing. Unfortunately, due to a number of reasons, she had not built a fiscal foundation earlier in her life. Like far too many Americans, she has basically lived paycheck to paycheck. As she drifts ever closer to retirement – or at least the traditional retirement age – she wanted to know if it was too late to start investing.

Never too LateAs I noted in a recent post, it is never too late to start investing. Considering she is starting later than desired and it is unlikely she will ever be in a position to maximize contributions to retirement accounts, I suggested that while she would likely never achieve millionaire status, she certainly had enough time to build a nest-egg large enough to support a comfortable retirement.

If it is not too late for her to start investing, the question then becomes, what guidance did I give to her and what guidance would I give to any person getting started in their mid to late-40s?

Keep it Simple …

Using the KISS principle, I believe there are four basic actions someone in this position should focus on. The first is to minimize expenses and get debt under control. Debt – discussed here and here – is the killer of achieving fiscal fitness and securing a retirement. Fortunately, debt is not an issue for my cousin. If debt is an issue, get it under control!

The next task is to start funding a retirement plan. If an employer offers a defined contribution plan such as a 401(k), start making contributions immediately; ideally enough to receive any matching contributions if offered. If a defined contribution plan is not an option, start an IRA. I prefer a Roth IRA and the tax exempt status at the time of withdrawal – vice a Traditional IRA and its tax deferment – which is what I recommended to my cousin.

The great thing is that individuals can create their own account, online, with companies like Fidelity in 15 minutes. And even though you may not have $2,500 to purchase the first mutual fund (the normal minimal initial contribution), you can always set up automatic monthly contributions (the last time I looked, Fidelity requires $100 minimum for use of this feature) which are deposited into a money market account. If $100/month is too much, you can always just manually transfer one time contributions (e.g. $20, $25, $35). Once that $2,500 is reached, the first fund can be purchased. Of course, after that, smaller amounts can be used to buy new shares.

That is exactly what my cousin has done, opening the account with $100 and the last time we spoke, she proudly proclaimed she has since made two more $50 contributions.

Emergency Fund

Emergency FundThe third action, which can actually be done concurrently with starting contributions to a retirement account, is to open a savings account. The savings account is used as an emergency fund, an account that is used only in the event of an emergency, to fill critical financial gaps, or meet unexpected expenses. It is immediate access to cash that allows you to take care of unforeseen circumstances without impacting the money you will be committing to investing.

The final action is to create a ‘my’ Social Security account and download a benefits statement. It makes sense, it’s very savvy, to understand what can be expected with respect to the Social Security pension. With these four action executed, it is now simply a matter of staying disciplined, growing [then maintaining] the emergency fund, and making consistent – hopefully continually increasing – contributions to the retirement plan.

If someone starts investing in their mid to late-40s, it isn’t too late to build a solid nest-egg. By starting with these four simple actions, it is possible to experience financial security later in life.

Do you know, or are you, someone who started later? What approach do you recommend to someone who is within 20 years of the traditional retirement age?

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. I got my financial head out of the sand late, but I had the wonderful dumb luck (I say “dumb” because I can’t take any credit for it) of having a pension plan through work. I’ve been contributing to it all along – even in my head-in-sand days. I’m surprised your cousin has no debt. Most people who aren’t financially aware have lots of debt. If she has no debt, she’s in a good position to ramp up her savings. All the best to her.

    • “… I had the wonderful dumb luck (I say “dumb” because I can’t take any credit for it) of having a pension plan through work.”

      I can relate. Probably the best decisions I made, without fully appreciating all the future benefits, was making the Army a career. All of my education – graduate degree – was essentially free and the pension starting at age 38 is a phenomenal, foundation building benefit. More opportunities open up when you have guaranteed income.

      Thanks for stopping by, my friend.

  2. I think your advice is great, James. I obviously focus on people who are in their 20s and 30s, so I don’t get to think or write about this demographic’s finances as much. I think your advice is really solid and is what i would default to. The interesting thing is if you are in your 40s you are potentially only halfway through your life! There is plenty of time to put money to work for you.

    • “There is plenty of time to put money to work for you.” Indeed. While someone that starts later will not fully realize the full potential of compound interest – after all, the time component will be less for them – if they set moderate retirement income goals and take a few key steps, they can live comfortably in what should be their golden years.

      Thanks for stopping by, my friend.

  3. A Google+ reader offers the following to those getting started…

    “Stop spending like it’s going out of style; simplify your life; sell your “stuff” on ebay and start saving every chance you get; even if it is in small amounts. Always remember to pay yourself first. Exercise common sense daily and live a practical lifestyle below your means. I wish I’d known all this in my 20’s!”

  4. At some point I think “starting late” is relative…and at some point its not (given some science PhDs, and MDs who start after their terminal degree and are making beaucoup money to contribute the max of everything). But I understand the point of the post. I’ve always worried that we started late but I know ppl who are my age who aren’t even thinking about it, even now…sigh.

    • By ‘late’ I’m referring to the idea that as a long-term investor, someone thinking about a retirement portfolio should think in terms of at least 20 years. Therefore, someone that is looking to retire in the traditional retirement window, 60-65, risks running behind the power curve if they aren’t actively engaged in contributing to retirement accounts and managing their portfolio by their mid-40s.

      Even if someone is earning a significant salary later in life, it is hard to make up for lost time. Time, and compound interest, are significant factors – the most significant IMO – with respect to attaining a financially secure retirement.

      I got started at 33-34 and sometimes feel as though I got a later start than I would have preferred. However, 14 years later, things are looking pretty good and I’m comfortable with the trajectory we are on.

  5. Good post. I actually started at 41, and I am proud to say I am now 48 and I have about $150k saved. Not too bad considering I paid my way thru college with no help and no loans! I feel pretty good about that. I wish all the luck and good fortune to your cousin. I know if I can do it she can too.

  6. A Google+ reader notes…

    “It is never too late but I think you need to make bigger changes the closer you are to retirement to try to offset the time wasted earlier in life.”

    • It depends on what you mean by bigger changes. I would agree that an individual that starts late should aggressively pay down any debt and aggressively contribute as much as possible to available retirement plans.

      However, I would caution anyone that starts late against trying and “make up for lost time” by investing aggressively in instruments that might no be appropriate for their age.

      In other words, investing as much as possible in a low cost, balanced index fund is probably wiser than going all in on two technology stocks. There is a real danger of really compounding the problem by trying to make up for lost time.

      • The Google+ reader replies…

        “I was thinking more about the expense side rather than wealth creation or income. To really make up for lost time, one needs to change their life style to live below their means. If a person is in the 40’s or more and has not saved, they probably are used to spending. That needs to change to have money to save, invest and grow for retirement.”

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