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I am an unemployed individual in my early 60's. I have no retirement savings nor pensions. I am looking for work but my prospects are dim.

Recently I have been compensated $15,000 from a lawsuit. What's the best way to invest that money?

I'd appreciate any advice!

  • Do you have any high interest debt? – Michael Nov 19 '17 at 2:15
  • No debt. And my monthly rent is very low. – Dombey Nov 19 '17 at 5:36
  • It would be useful to have a scale for your expenses. About how much do you spend a month? Will you be able to live comfortably on social security? – rhaskett Nov 19 '17 at 12:54
  • if you need help answering the above question the AARP has a reasonable Social Security benefit calculator. aarp.org/work/social-security/… – rhaskett Nov 19 '17 at 13:02
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Donbey since you mention your expenses are very low, I'm going to assume that social security will cover your expenses once you qualify for it. Since you have no savings currently the first and most important job for this money is to make sure that you can live comfortably until social security kicks in. Social security could start for you as early as 62 so you need to set aside at least two years worth of money plus another chunk as a safety measure.

Also, if you don't have health insurance please look to get a plan through your local ACA exchange as not having health insurance is by far the most common way someone your age ends up bankrupt. Insurance will eat up a good chunk of the money, but will be much cheaper after the first year if you continue to have no income.

Now, if your expenses are low enough, you can look to use this money to delay when you start taking social security as long as possible as the longer you delay social security the more money you get. The AARP has a calculator where you can see how much more per year you will get from social security if you delay taking it as long as you can. This is a great way to insure you live as comfortably as possible even if you live to 120. Assuming you are reasonably healthy, this is a very secure and very meaningful way to "invest" this windfall.

Once you have set aside the money for your expenses, emergencies, health care and delaying social security in a combination of checking and high-yielding savings accounts, yhen it can be in your interest to invest any remaining amount. Common, solid, low-risk investments for a 10+ year time frame would be either:

  1. A diversified, U.S. index bond fund of either just U.S. government bonds or a mix of government and company bonds (slightly more risky, but generally has higher returns).
  2. or medium-term Certificates of Deposits (CDs)

While Glen is correct that it is possible for even the best bond fund to lose money it is rather unlikely that you will end up losing money over a period of 10 years. The nice thing about the bond fund is that most funds (find the right one) don't charge a fee if you need to need to take your money out early. CDs guarantee that you won't lose your money, but if you have to take the money out in an emergency the fees will eat up way more money than a bond fund would normally lose. Also, a good bond fund will generally yield a bit more than a CD.

Investing in stock is generally much too risky for this sort of time frame without large savings to back it up.

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    Once he finds bridge job he can invest, but going 100% bonds is barely going to keep up with inflation, and CDs will slowly lose to inflation. Asset allocation for 60 calls for 40% stocks (50 or 60% if you modify the rule of thumb to match extended life expectancies), remainder bonds. So, 1) bridge employment, 2) Stock fund(s) and bond fund(s) with conservative asset allocation (low cost index funds for each, with emphasis on total market funds), 3) find new full time employment. Once he reaches full time job, he can hopefully add to this nest egg and keep it building, even after retirement. – Xalorous Nov 20 '17 at 21:58
  • @Xalorous while you are correct that a normal allocation for someone around 60 would have that sort of mix of stocks/bonds but that allocation assumes someone is still working or earning enough they don't need to work. The OP is 60, not working and has $15K and maybe a house. In many parts of the U.S. that 15K may not last the two years until social security starts. And at 60, job prospects could well be thin. I offered investment options as the OP asked, likely as Dave Harris notes below, the best advice would be no investment at all. Almost certainly not a stock fund. – rhaskett Nov 21 '17 at 2:08
  • My comment was prefaced with "Once he finds [a] bridge job". Personally, I would wait until I was in a full time permanent position before locking that cash away in an investment. But once that is accomplished, he needs to grow his savings, not spend it down counting on social security in two years. Much better to do anything for five years so that he gets his full social security, and try to build that nest egg so that he has something he can use to supplement social security, maybe fund a hobby, or at least cable tv/internet. – Xalorous Nov 21 '17 at 14:26
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    Thanks rhasket and Xalorous for weighing in on this! Nice to have a PHD Maths holder on this forum. Keep up the good work! – Dombey Nov 24 '17 at 4:58
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Until you find a job, I would recommend doing nothing more than a bank checking account or a checking and savings account. Some alternatives, such as savings bonds, would be okay if you were perfectly sure you did not need the money in the next six months. Consider working for a place such as McDonald's in the meantime.

Once you have stable employment, there are two paths you could take. The first is a bond fund. It would provide fair market returns for the time between now and the collection of social security. The second would be a traditional annuity. You have to be careful with them. If it sounds much better than what others are offering, it is probably a scam. Your interest in an annuity is that it will pay you money for as long as you live. If you live to be 105 you will still be getting payments. A bond fund would have run out of money long ago by that time.

The biggest thing for you right now is getting to when Medicare takes over from private health. Looking for any job is important right now to preserve cash.

Although I do not normally recommend annuities, I do with smaller amounts of cash. It is unlikely you will ever recover this sum again and the time remaining to save is very short. The greatest challenge with an annuity is regret. You can't get the money back once you have turned it into an income stream. On the other hand, it will last as long as you live.

The only important caveat is that if you are in poor health, then the bond fund would be better for you because you may not live to be very old.

  • Thanks for the response. I would work but no employer would take an old fart like me. – Dombey Nov 24 '17 at 4:54
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Assuming you can understand and emotionally handle the volatility, a good indeed fund would be wise. These are low fee funds which perform as well as our better than most managed investments and since they don't cost as much, they typically out perform most other investment vehicles. The S&P 500 is traded as SPDR. Another option is the Dow Jones Industrial Average, which trades as DIA. Average returns over the long term are 10-12%.

If you expect to need the money in the short term (5-8 years), you have a non trivial chance of needing to pull the money out when the market is down, so if that's unacceptable to you, choose something with a guarantee.

If you're terrified of losing money in the short term, don't think you can handle waiting for the market to go up, especially when every news caster is crying hysterically that the End of Economic Life on Earth is here, then consider a CD at your bank. CDs return much lower rates (around 2% right now) but do not go down in value ever. However, you need to lock your money into them for months to years at a time.

Some people might tell you to buy a bond fund. That's horrible advice. Bond funds get lower returns AND have no guarantee that you won't lose money on them, unlike aactual bonds.

As you're new to investing, I encourage you to read "The Intelligent Investor" by Benjamin Gramm.

  • Glen, you can lose money on bonds as well as bond funds. Bond funds are generally much, much safer than individual bonds due to the diversity. While bond funds are more likely to lose a small amount of money with an individual bond you are much more likely to lose most of your money. en.wikipedia.org/wiki/Bond_(finance) – rhaskett Nov 19 '17 at 18:47
  • I did not say one cannot lose money on an individually issued bond, I implied that there is a guarantee that investors won't lose money on them, which is true. The guarantor might go bankrupt, but "The 31-year average for securities rated AAA (the highest rating) and AA were 0.0% and 0.2%, respectively" -thebalance.com/what-is-the-default-rate-416917 so I wouldn't be too worried about it. – Glen Pierce Nov 21 '17 at 15:13
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Well, sorry to hear about your struggles! For your question, $15,000 is sadly not enough money to build a career on investing for yourself, if you’re referring to the stock market. Unfortunately you need I believe $25,000 to even have a day trading account, plus the best investors in the world probably net 5-10% which is only tops $2,500 per year!

On the other hand, $15,000 maybe you could use an FHA loan and buy a small condo that you could renovate and flip. FHA lenders only require 3.5% down plus closing costs.

I would need more information on what type of investing you’re referring to.

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    You can start investing without being a day trader. Flipping houses is not investment activity, it's another career (since you're putting your own work into the project - which is the only hope one has of making money in that endeavor). – Glen Pierce Nov 19 '17 at 17:34
  • What Glen obvious doesn’t understand is that you’re looking for options to make a living. His options of CD investing or index investing would produce small returns that could not generate enough yearly income to live off of. – Smarg2389 Nov 19 '17 at 18:44
  • If you want to purely invest your money while working in something else then may I suggest you discuss your options with a financial advisor. If I were you I would look into mutual funds or us bond funds, both are very safe investments. – Smarg2389 Nov 19 '17 at 18:51
  • Smarg, Dombey could start social security in as little as two years. Assuming his expenses are not too large he has no need to take crazy risks with the money. – rhaskett Nov 19 '17 at 18:51
  • I agree, it was my understanding he wanted an investment career! If he just wants a good investment for his money he should invest in diverse investment vehicles like mutual funds. – Smarg2389 Nov 19 '17 at 18:53

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