You are never too old to start investing | personal financing

Of course, it is much easier to build a large nest if you start at a young age, but as long as you have more money than you desperately need to cover your costs, you have an opportunity to invest. Seniors face slightly different rules when it comes to where and how they can invest compared to younger ones, but the investment process is open to anyone who is able to pay the money.

Regardless of your age, it is important that you maintain your time horizon so that you need money in mind when looking to invest. This is especially critical for seniors who often don’t have the time to wait for money back or a high-paying job to rely on to save spending money when the market moves against them.

A decent strategy is to divide your financial needs into three different time groups:

• Emergency: You never know when you’ll need it, but you’ll be happy to have it as cash when you need it.
• Within the next five years: Expected expenses that you will want to cover with money during this time frame.
• further into the future: Money that can grow to help you cover your long-term priorities.

Emergency funds should be on hand. Yes, purchasing power will be lost over time due to inflation, but that money belongs to a savings account, a no-penalty CD, or another easily accessible, very certain cash source. This is important because the market does not provide guaranteed returns. If you need your emergency funds at a time when the market is down, being forced to sell shares when they are down to cover your costs can make it difficult for you to participate in any subsequent recovery.

The money you need within the next five years does not belong to stocks. Alternatively, a ladder of investment grade bonds, Treasuries, or other high-certainty investments would be more appropriate. Your potential returns will likely be lower than in stocks, but you will have a higher probability that the money you will need will be available to you when you need it. After all, as we mentioned the first half of 2022, in the short term, stocks can go down or up.

Only money that you do not anticipate that you will need to spend for more than five years should be considered as a candidate for investing in the stock market. If you are a senior retiree, this could mean a combination of money Later In your retirement years, the money you want to leave as a charitable legacy, and the money you intend to pass on to your heirs. So, yes – even seniors in their retirement age can make an argument to invest at least part of their assets in more aggressive instruments like stocks.

That being said, there are some rules that differ for seniors from their younger counterparts. First, if you use Medicare—even Medicare Part A only—you can no longer contribute to a Health Savings Account (HSA). This is because Medicare is not a high-deductible health insurance plan, and enrolling exclusively in this type of health insurance is a prerequisite for putting new money into an HSA.

Additionally, once you reach the age of 72, you are required to take the minimum distributions required from most qualified retirement plans. These distributions must be taken from any traditional IRAs you have and also from any 401(k) plans you have, unless you are still an employee of the company that sponsors your 401(k).

On a somewhat related note, to contribute new money to a 401(k) or IRA, you must be an employee or act as a contractor. You need enough income from the business to cover your contributions to these accounts, and you still need to pay attention to the required minimum distribution rules. In other words, you may find yourself in a situation where you cannot contribute to a tax-protected account or you can contribute but are quickly asked to withdraw a portion of that money.

It’s also important to note that if your income from all sources is high enough, it can raise your Medicare Part B premiums and make up to 85% of your Social Security benefits taxable.

Despite the age-related differences that seniors face, investing is still a great way to build a fortune for yourself, your heirs, and a long-term legacy. However, you will never again have time to invest more than you do today, so if your income is greater than your expense, today is a great day to put your plan in place. Get started now, and improve your chances of seeing a small part of this legacy come true.

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Chuck Saletta does not have a position in any of the stocks mentioned. The Motley Fool does not have a position in any of the stocks mentioned. Motley Fool has a disclosure policy.