Where to put money if starting saving at age 65?

[HundredK]

My mom is 65 years old and is starting from zero with savings after the death of my dad (less than zero really, but I have helped with that and am getting her started saving with a 6 month emergency fund). She has a very limited income and now not many expenses, so that 6 month emergency fund is much less than it would be for you or I, and I will encourage her to continue adding any of her spare dollars to it. Where would you save this money? High yield savings? Would you consider investing any of it if it gets to a certain level? What is enough of a cushion to do that? Is her age such that we should plan to always keep everything liquid and in high yield savings and cope with her not getting much of a return? It's hard to contemplate starting at zero at age 65, and I want to think it through carefully. Thanks! Any input welcome.

[disneysteve]

The EF should be in an online savings account like Ally.

if she has money beyond that, I would consider something that incorporates a bit of growth. Vanguard has some good funds but you need $3,000. I’m sure there are ETFs that do the same. Look for a 20/80 allocation.

[HundredK]

The EF should be in an online savings account like Ally.

if she has money beyond that, I would consider something that incorporates a bit of growth. Vanguard has some good funds but you need $3,000. I’m sure there are ETFs that do the same. Look for a 20/80 allocation.

Do you think 6 months is enough of an EF and that anything beyond that would be ok going into investments (at whatever point we accumulate enough)? I know bonds are very safe, but even if we did a 100% total bond ETF, there is always some risk, and at her age I get nervous. Easier to make the decision to invest when you have decades ahead and more resources... not so easy when you have maybe 1-2 decades max and starting at zero. It makes my stomach churn, lol.

[Snicks]

If she has zero savings, then the emergency fund is the priority. If she has limited income, I doubt there is much to do beyond that. She might consider some type of health care savings account or an Index mutual fund. I think that a good evaluation of her living arrangements is in order. Is she in a house? Owning a home is very expensive. She might be better off in an apartment or condo.

[bjl584]

where is her income coming from? A job or SS, or a combination?
what is her monthly income and expenses?

it may be worth putting at least some of her extra money into something that will get her a return.

[Petunia 100]

Do you think 6 months is enough of an EF and that anything beyond that would be ok going into investments (at whatever point we accumulate enough)? I know bonds are very safe, but even if we did a 100% total bond ETF, there is always some risk, and at her age I get nervous. Easier to make the decision to invest when you have decades ahead and more resources... not so easy when you have maybe 1-2 decades max and starting at zero. It makes my stomach churn, lol.

How is she going to feel about investing in something and one day she receives a statement and her principal has declined? If it is going to upset her, then just stick with online savings accounts.

[HundredK]

where is her income coming from? A job or SS, or a combination?
what is her monthly income and expenses?

it may be worth putting at least some of her extra money into something that will get her a return.

Her income is a small SS check of about $900 and a job that pays $13 an hour which she currently is able to work 24 hours a week (but as with all PT jobs that pay practically nothing, that could always change at a moment's notice and be less). She is quite frugal, so she can pay her rent and expenses with a few bucks left, but at that income level, I obviously mean *just* a few bucks. We're not talking large sums here.

[HundredK]

How is she going to feel about investing in something and one day she receives a statement and her principal has declined? If it is going to upset her, then just stick with online savings accounts.

Yes, I think it would upset her to lose any amount of the only money she has saved. But she'd be overjoyed at it gaining more than the piddly high yield savings rate too, obviously. I was even thinking of maybe doing some bank churning with her 6 month emergency fund, that at least is guaranteed and would pay way more interest than a savings account if we moved it every 6 months or so. There's always some bank offering bonuses to start new accounts. But I think it would feel overly complicated to her.

[HundredK]

If she has zero savings, then the emergency fund is the priority. If she has limited income, I doubt there is much to do beyond that. She might consider some type of health care savings account or an Index mutual fund. I think that a good evaluation of her living arrangements is in order. Is she in a house? Owning a home is very expensive. She might be better off in an apartment or condo.

We've definitely narrowed down her living expenses to the bare minimum. She was already a renter, no assets to speak of except a car that is bluebooking in the hundreds of dollars. ;-)

[disneysteve]

Do you think 6 months is enough of an EF and that anything beyond that would be ok going into investments (at whatever point we accumulate enough)? I know bonds are very safe, but even if we did a 100% total bond ETF, there is always some risk, and at her age I get nervous. Easier to make the decision to invest when you have decades ahead and more resources... not so easy when you have maybe 1-2 decades max and starting at zero.

Her income is a small SS check of about $900 and a job that pays $13 an hour which she currently is able to work 24 hours a week (but as with all PT jobs that pay practically nothing, that could always change at a moment's notice and be less). She is quite frugal, so she can pay her rent and expenses with a few bucks left

1. I think EVERYONE needs to have some money in the market to offset inflation. At 65, she may live another 25-35 years assuming she's in good health. I think 30% in stocks is a good number but if she's super conservative or risk averse, less is fine too. As I said, an 20/80 fund or ETF would be good.

2. Can she cover all of her expenses on her SS check or does she depend on that job income? If she needs the job income to live, what happens if the job goes away or she becomes unable to work for some reason?

As for her potentially getting upset seeing her balance fluctuate, I'd really focus on educating her on that point. Show her some charts illustrating long term returns of stocks, bonds, and cash, so she can visualize why even a tiny bit of equity exposure is so beneficial over the years.

The great thing today is that there are zero commission ETFs so she can invest in them one share at a time if that's all she has the money for.

[disneysteve]

I just wanted to also emphasize that 100% cash is also risky. Inflation erodes purchasing power every year. For someone on a super tight budget, that’s particularly hazardous. That’s why you need at least some equities to buffer that.

[kork13]

I'd personally suggest a very healthy EF/cash account (eventually getting to 12 months of expenses would not be excessive), paired with a balanced fund of some sort to provide growth over time... Vanguard's Wellington (VWELX) as an example -- healthy & relatively stable growth, low cost, and well managed. But even though it's got less than half the volatility of the overall market, it does & will fluctuate -- your mom needs to learn not to worry about day-to-day gains/losses, but rather year-to-year gains.

[Fishindude77]

I'd simply set up a savings / checking account at her local bank and shoot for getting at least $5-10,000 saved before worrying about investments or anything else.
That alone will take a while at her income level.

[disneysteve]

I'd personally suggest a very healthy EF/cash account (eventually getting to 12 months of expenses would not be excessive)

I agree. At 65 and living nearly paycheck to paycheck, a solid EF is critical. I do want to know where the job income fits in, though. Is it required to cover expenses or not? If it's required, she has much bigger problems.

[HundredK]

1. I think EVERYONE needs to have some money in the market to offset inflation. At 65, she may live another 25-35 years assuming she's in good health. I think 30% in stocks is a good number but if she's super conservative or risk averse, less is fine too. As I said, an 20/80 fund or ETF would be good.

2. Can she cover all of her expenses on her SS check or does she depend on that job income? If she needs the job income to live, what happens if the job goes away or she becomes unable to work for some reason?

Agreed about inflation, that is definitely a valid concern. Her SS check does not cover all of her expenses, and she needs the job to live. There's no specific contingency plan at this point (she is in an emotionally wobbly place and there's a limit to what I can bring up), but my feeling is that if she can't work anymore or loses her job, we will have to make quick drastic changes, utilize the emergency fund, and see if she can qualify for any assistance without a job - she currently does not qualify for any assistance with the job. I'm also planning to look into subsidized housing for her, but I know it's going to be a full-on battle to get her to so much as consider moving, and the place she lives right now is nice, safe, and very reasonably priced (landlord hasn't raised their rent in 15 years).

Hmm, another question, with her EF calculation, should I just go ahead and assume she will be getting SS for the remainder of her life and deduct that from the amount needed for each month of EF? Seems like a fairly safe bet to do that? My current calculation, I didn't include SS at all in her EF needs.