The classic image of retirement is someone sitting on a beautiful beach with his or her life-long partner — perhaps somewhere in the middle of the Mediterranean — enjoying all the financial benefits of a long and rewarding work career. For that dream to become a reality, though, you have to start planning now. Choices made early in life — as early as your 20s – have enormous implications for the size of your retirement nest egg.With that in mind, you need a road map for future success. The road to a rich retirement starts in your early 20s. You may not have reached the peak earnings of your career, but you have something else in your favor – the time value of money.
There are a number of retirement products that can take advantage of the long time horizon until retirement age. Most financial advisers recommend that young investors take a more aggressive risk/reward profile, using products such as an equity growth fund.
At an early age, your focus should be on capital appreciation, not on income.As you progress into your late 20s and early 30s, though, you can start readjusting the risk/reward profile of your investment portfolio. You also need to be keeping an eye on your overall debt levels. Be sure to pay down credit card debt, start making a dent in any student loans, and begin planning to protect any financial assets you may have. At this age, for example, you may already have a house and a growing family, and will need to take steps to protect them against potential loss.
Then, as you move into late 30s and early 40s is when you might want to hire a financial adviser to help sort out your options. At this point in life, you need to think about the right asset allocation mix and about your long-term investment strategy for a rich retirement. As you get older, you’ll want to take on a more conservative investment profile, shifting out of growth funds into balanced funds. You’ll also need to pare down your debt and spending, using any extra savings to reinvest into a pension fund or other retirement investment product.
It’s when you get into your 40s and early 50s, that you’ll really want to make sure that your investment portfolio is built for the long term. You’ll want to keep building your portfolio so that it can support as much as 30 years of retirement. Since you’re now likely in the peak period of your earnings, you’ll also want to transfer any pay raises or bonuses into your retirement savings to give them an extra lift.
Finally, as you head into retirement age and start hitting your 60s, you’ll want to make sure that you have enough cash and income for retirement. Since your work years are now most likely behind you, you may want to start thinking in terms of annuities and guaranteed cash flow streams that can support you and your spouse in retirement. As an added concern, you’ll want to make sure that any debt – especially any mortgage debt – is now under control.
With this long-term investment strategy, you’ll be well on your way to a rich retirement. If all goes according to plan, the money that you saved in your 20s and 30s will have compounded over time, giving you a stable source of cash and income later in life. And, depending on how well global financial markets are doing when you retire, you might just have enough cash to splurge on that mythical Mediterranean vacation after all!
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