Planning Your Retirement
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|
Identifying a Suitable Portfolio
|Portfolio Mix||Investor Profile|
(e.g. 80% - 100% equity)
(e.g. 70% equity / 30% bond)
(e.g. 50% equity / 50% bond)
(e.g. 30% equity / 70% bond)
(e.g. 100% cash)
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.