Planning your retirement

Planning Your Retirement

Retirement Step-by-step

There are four simple steps in planning for a comfortable retirement lifestyle. Because your retirement assets may represent a substantial proportion of your total wealth it's worth paying close attention to your plan. Follow these steps and it will become easy to begin planning for a happy retirement.

Step 1 - set your investment objective

It is essential to know how much you will need for a comfortable retirement. To work that out, first list the basics such as:

  • Estimated living cost per year after retirement
  • Estimated medical expenses
  • Possible inflation rates
  • The lifestyle you aspire to have

Step 2 - develop your plan

Before you start to develop your retirement plan, it may be better for you to understand your risk and return profiles. Investment involves risks. The better you understand your risk tolerance level, the more effectively you will manage your retirement investments. Generally, if you are younger and can invest longer, you will have a higher tolerance to risk. Therefore younger investors might consider a growth-oriented portfolio that aims to achieve their retirement goals sooner.

Step 3 - understand the basic asset class and portfolio mix

It is important to consider the key features of the various investment funds that are available to you. To what extent are they likely to provide capital growth or income? What are the main factors that drive their performance? How risky are they relative to other types of funds?

Investment Choice

Fund Characteristics

Relative Risks

Equity Funds

  • Can produce capital growth and income
  • The capital gains mainly come from rises in the prices of the shares held in the funds
  • Income comes from dividends paid by the companies that the fund invests in
  • Higher return potential, but higher risk relative to other funds


Bond Funds

  • Can produce capital growth and income
  • Capital gains come from rises in the prices of the bond funds
  • Income is usually generated by the interest paid on the bonds
  • Has a medium return potential and generally considered to be a rather stable investment and risk associated is comparably lower than equities


Cash / Liquidity Funds

  • Invests generally in short-term high quality interest securities or commercial paper
  • Usually has little potential for capital gains
  • Income comes from interest from bank deposits and very high quality short-term bonds
  • Has the lowest potential for returns, but also the lowest risk among investment funds


Identifying a suitable portfolio

Portfolio Mix

Investor Profile


(e.g. 80% - 100% equity)

  • Age: The early years eg. below 40 (20-39 years old)
  • Investment strategy: Aggressive
  • Risk appetite: Willing to take high risks
  • Looking for attractive long-term capital appreciation and maximization of investment returns


(e.g. 70% equity / 30% bond)

  • Age: below 50 (20-49 years old)
  • Investment strategy: Growth
  • Risk appetite: Willing to accept above average levels of risk
  • Looking for long-term capital growth and income without excessive risk


(e.g. 50% equity / 50% bond)

  • Age: Mid-life eg. 50-55 years old
  • Investment strategy: Balanced
  • Risk appetite: Willing to accept medium levels of risk
  • Looking for capital growth with some stability


(e.g. 30% equity / 70% bond)

  • Age: Approaching retirement 56-62
  • Investment Strategy: Moderately conservative
  • Risk appetite: Willing to accept a relatively low level of risk
  • Looking for capital preservation with some stable growth of income

Very Conservative

(e.g. 100% cash)

  • Age range: 62 and above or retired
  • Investment Strategy: Very conservative
  • Risk appetite: Unwilling to take risk
  • Looking for capital security and stability with very minimal risk

Step 4 - review and rebalance

Balance is desirable in many things and that includes your portfolio. Building your initial retirement investment portfolio is only the first stage of the retirement planning process because your life will go through different stages and you will experience change between now and when you retire at 65. The next stage of the retirement planning process involves reviewing your retirement portfolio regularly, eg. once a year and rebalance your portfolio from time to time. You might need to reassess your investment objectives and your risk appetite each time before choosing a strategy that meets your needs and changed situation.

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