Don't forget to rate the article

You’ve probably read umpteen articles on retirement planning an so on so forth. So another one probably will have nothing new to add. No this is not so. Retirement portfolios have to be made with different perspectives depending upon the age of the investor.

For instance when you are in your early 20’s and thirties-what you have on your side is not money but time. At this stage of life, the pressures of establishing your career and family are paramount -- and retirement is far, far away. But your early years are key, and the small choices you make now can have a profound effect on your later life. Whatever seemingly insignificant sums you can put away these days have plenty of time to grow into a significant nest egg over the next several decades. Unfortunately, many people don't take full advantage of that. So start with the basics. Eliminate your debt. Sign up for a PPF account and contribute something to it every month. Get in the habit of paying yourself first with every paycheck; set a small amount aside immediately, before devoting the rest to shelter, clothing, food and fun.

Many beginners err on the side of conservatism. With a very long time horizon, you can invest aggressively and ride out the volatility of higher-risk asset classes. So put virtually all of your savings into stocks, including healthy doses of large cap stocks and small-caps. Large-cap domestic equities should be the anchor of your portfolio, but diversify with small-caps and bonds.

Once you have opened whatever deductible tax-free retirement accounts you qualify for, consider opening a brokerage, mutual account. Fund it with a payroll deduction or systematic withdrawal plan. Don't blow windfalls like inheritances and bonuses entirely on vacations and luxuries. Sock away at least a part of the money. Pay off all your credit-card debt and student loans as soon as you can. Interest compounding is a vicious wealth-killer.Put aside three months' worth of rent and expenses in a money-market fund or short-term CD as an emergency fund.

The 40’s and 50’s are your power earning and saving years. Most people are at the peak of their earning potential during their forties and fifties, but they also have a laundry list of financial pressures to attend to besides retirement planning -- children to be educated, parents to be cared for, homes to be financed. Fortunately, you still have a good 15 or 20 years till retirement, which means that you can continue to be an aggressive investor. Start thinking about what you're looking for out of your retirement; that way you'll know if you're on track to get there. The traditional rule of thumb -- that in retirement you'll need 70 percent of what you make now -- may be based on several outdated assumptions. With today's flatter tax system, for example, you may not actually be in a lower tax bracket when you retire. After accounting for inflation, many advisers now tell clients to assume that they will need 100 percent of their pre-retirement income because retirement lifestyles are hard to predict. As you near middle age, it's important to stick with stocks, but consider paring down small-caps and adding to bonds.

When changing jobs, don't overlook what happens to your retirement benefits. Often you must wait to become eligible for your new employer's plan -- meaning you lose out on valuable time for contributing to your nest egg. Factor this in when negotiating a new salary package.

Don't cash out your provident fund when you switch jobs or you'll lose your early bird advantage. Continue contributing to your PPF and provident fund account. Set retirement goals. How much, in today's rupees, would you ideally like to have annually after retirement? Consider how your assets are allocated across your whole household. Do your choices make sense when viewed together with your spouse's?

The home stretch of 55-65 is when you should fine tune your goals and strategies. Now it's time to take stock, ponder some lifestyle choices and maybe make some trade-offs. At what age will you ultimately retire? Will you work part time? Will you move? Will any of your children still be in college? Do you expect your parents to need support? Are you in good health? Do you expect to be healthy years from now? As you approach retirement, you need to stay heavily invested in stocks but favor more stable large-caps. When retirement is a year away, take some more detailed steps to make sure your transition is a smooth one:-Contact former employers from whom you may be entitled to retirement benefits; ask for an estimate of benefits. Calculate a detailed retirement budget, using last year's expenses as a guide. Make a list of your assets, including what benefits are available to you and your spouse if one of you dies. Consider buying long-term-care insurance to guard against future nursing-home costs. It's expensive but far cheaper than trying to get coverage once you're already retired.

Once you have finally retired then the key to management of the retirement program is smart drawdown. Even in retirement, you still need to have some of your money invested in equities, to keep it growing and to protect against inflation. After all, if you're in your sixties, you could be drawing on those funds for up to 40 years. A professional adviser can help you figure out how much and from which account to draw monies. It's critical to be aware of tax implications when deciding which funds to draw from first. Firstly use any funds that you have in regular brokerage accounts -- they're taxable, but as long as you've held those investments for more than a year, they'll be taxed at the capital-gains rate, which is usually lower than rates for ordinary income.

Leave your regular PPF account untouched for a few more years if you can -- the longer you put off withdrawing, the longer that money can grow. But don't wait too long. Put approximately half your money in bonds to pay you income and half in stocks to keep what's left growing.

Aru Srivastava

Feedback

Rate this article