Your responsibilities, income, needs and goals change in each decade of your life, and achieving financial security in retirement is a long-term endeavour. It’s important to review your retirement portfolio regularly to ensure that it is in line with your objectives and current circumstances. 

Experts believe that it’s never too early or too late to work on retirement plans. However, your personal circumstances in each decade of your life change, which is why you should also change your focus.

To better guide you on what you need to focus on in each decade of your life, you need to determine how feasible your plans are considering your current situation.

Identify core aspects of your retirement

The first thing you need to do is to identify the 5Ws and 1H of your retirement.

• What kind of retirement lifestyle do you want?
  Do you want a modest, comfortable or lavish retirement? Figuring out the retirement lifestyle you want will help determine the amount of retirement funds to aim for.
  
  
• When do you intend to retire?
  Will you retire early, late or when you reach your pension age? This, along with your current age, determines your time horizon.
  
  
• Who is part of your retirement?
  Are you retiring as a single pensioner or do you have a spouse? If you have a spouse, do they have enough in their own super? Will either or both of you need special healthcare service? This decides whether you need to increase your savings.
  
  
• Where do you plan to retire?
  Will you be staying in your family home, in a retirement village or facility? Perhaps you may also be considering retirement overseas. Where you plan to reside may affect the amount of money you will actually need in retirement.
  
  
• If you plan to retire early, why will you retire?
  Are there underlying health reasons or will you simply be pursuing something else? This should determine if you need to increase your money goal.
  
  
• How do you plan to secure your finances for retirement?
  Will you simply maximise your super or will you secure other investments to generate more income? Your investments can affect the final amount of money you will have in retirement.

You need to answer all the questions above to create a full retirement plan, but you don’t necessarily need to have all the answers to get started. The most important aspect when it comes to retirement planning is having an objective to work towards.

For starters, you should have an idea of the kind of retirement lifestyle you want, as well as the age at which you wish to retire. Knowing these two can help you estimate how much you need to save for your retirement fund.

Decade-by-decade retirement planning

The two most important questions you need to answer before drawing up a plan is your “what” and “when” because these will give you an idea of your goals and time horizon. The rest of the questions will help you determine whether there is a need to adjust your retirement plan.

Here’s what you need to focus on in each decade of your life from your 20s up until your 60s.

• 20s: Planning and preparation
• 30s: Adjusting plans
• 40s: Catching up
• 50s: Winding down and pre-retirement preparations
• 60s: Wrapping up

Planning for retirement in your 20s

There are five core things you need to do in order to financially secure your retirement: plan ahead, secure income, accumulate funds, invest savings and get insured.

Plan ahead
The most important step to take in your 20s is to lay down the foundations for your retirement – even if you just started on your first full-time employment. Planning early can help you identify your retirement goals and the steps you need to take in order to make it happen.

Once you’ve laid down the foundations, or as you work out your plans in your early 20s, you need to find ways to generate steady income. You may also need to draw up a budget and spending plan so that your needs – and some wants – are financially covered.

This decade of your life is also a good time to hone your financial literacy so that you can make more informed decisions when it comes to your money. Developing a good financial sense should also help you avoid incurring unnecessary debt that can jeopardise your finances in the long run.

Secure income
This step is very important because you can’t save and grow your money if you’re not making any; hence, your starting point would be to find ways to regularly generate income through employment, by operating your own business or other legal means.

Since you are in the early years of full-time employment or business operations, it’s only natural that your income may not be as high as you wish; however, it’s still important to avoid a gap during your income-generating years.

Next is to find ways to increase the income you generate. For instance, you may consider asking for a pay raise or upskill yourself so you can be entitled to a promotion with wage increase. You may also consider turning your talents and hobbies into money-making projects.

Once you generate a steady income, make sure to keep your spending below your after-tax dollars by following a sound budget and spending plan.

Accumulate funds
Once you have a source of regular income and a budget and spending plan, the next step is to work on accumulating funds by saving money.

One of the first things to prioritise is to build your emergency fund. This fund should ideally amount to six months’ worth of your wage so that you have funds to fall back on in case there is a break on your income-producing activities.

The second but equally important thing is to build enough savings for a variety of purposes, including using the money as principal investment.

Invest savings
Your super is already one investment you own starting from the day you become gainfully employed. If you are eligible, your employer is required by law to pay the 9.5 per cent salary guarantee to your chosen super fund or your self-managed super fund (SMSF).

Your super may be your first foray into the investment market, but it doesn’t have to be the only one, especially if you’re investing for something big like your retirement. However, if you plan to step away from professionally managed investments or push ahead without an investment manager, make sure to develop your financial literacy and practise due diligence. It’s also advisable to be prudent and avoid high-risk strategies that involve timing the market.

Many investment experts agree that when it comes to capital growth and return on investments, the investor’s time in the market is more important than timing the market. By investing the money you save in your 20s and keeping it invested until retirement, you may be able to capture better returns – provided you practise due diligence and make smart investment choices.

You also need to rebalance your portfolio regularly to ensure that it doesn’t stray from your chosen investment strategy.

Get insured
Availing an insurance policy in your 20s is advisable because insurance premiums tend to cost less compared to how much people in their 30s and older pay for. However, it’s also important to consider your personal circumstances first before signing up for a policy because you may end up paying for insurance cover that you don’t need.

Simply put: If you don’t have dependants who financially rely on you, you may only need specific types of insurance such as income protection or disability insurance. If, however, you have financially reliant dependants, you may consider availing a comprehensive cover.

You may also ask your super fund if they offer insurance because your premium could get lower if the insurance is purchased within the fund.

Your 20s is the best time to become financially literate, develop a saving habit and invest in growth assets to take advantage of the time value of money – the idea that the money you hold in the present is more valuable than the same amount of money in the future.

If you can’t commit to a DIY retirement plan and execution, consider seeking the advice of a licensed professional who can help you with each step of the process.