Sunday July 20, 02:04 AM
Life-stage retirement planning
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It is never too early to start retirement planning. Whether you are in the first year of your career or are already nearing retirement, an analysis of your life's objectives and priorities as per the stage of life you are in, is an absolute necessity as it helps you frame realistic expectations and guide you towards what you wish to accomplish. Add, the ageless logic of putting time on your side and you may well have a sound retirement plan, courtesy compounding. The latter will require you to follow an efficient asset allocation strategy, reducing risk and optimizing returns leading you to the right investments. Let me just classify life stages as: starter, mid-pointer and winding-downer. If you are a starter - typically, you may be in your first job, single or Dink (double income couple), may be living with working parents - you have plenty of active years ahead - you will have a great advantage over others if you start early. Your earnings from investments will stand a comparatively greater chance to compound over time. Hopefully, much of these will be equity investments - that class of assets that are likely to perform superlatively over a long stretch of time. If you are a mid-pointer, somebody who is hitting mid-career, in its prime - your responsibilities have started mounting. Kids are growing up fast having education and marriage needs. Vacations beckon. You are in a high-earning, high-spending mode. Also, you will want to be able to upgrade and maintain your lifestyle and own your own house if you do not have one. Once you know the period in which you expect to retire, see whether your asset allocation needs tweaking. Some money may need to be parked into liquid assets like Liquid Funds to ensure smooth spending, come what may - a measure that will fetch you stable returns and capital preservation over a short term. If you are a winding-downer, you have peaked your prime, reaching your retirement threshold. Time to scale down allocations to risky investments. Now you may not have the energy to bear great risks. Still, you need to take some short term risk for the long term wealth creation prowess of asset classes like equity, as you have still got a long way to go. Buy annuities that will take care of your needs in later years. A second property put up on rent or investing in REITs could be a good proposition. Even when you are, say, 60, there may be a good 20 years ahead of you. For god's sake, don't mess up now. So, when should you start saving for retirement? Now is the time to start, whatever stage of life and career you are in. The author is a certified financial planner and managing director SKP Securities
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