From career start to retirement: How to plan your finances at each life stage

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Updated: August 23, 2016 10:25:10 AM

Depending on your age, we have tried to construct what could be the possible financial situation and advise you what you should do at each of these stages.

retire-reu-LA good financial plan includes, among other things, saving and investing over the years, having adequate insurance and planning early for your retirement years to build a corpus. (Reuters)

Financial planning has to be a continuous exercise throughout a person’s working life. The earlier you start, the better. You need to set your goals in life and plan your finances accordingly. A good financial plan includes, among other things, saving and investing over the years, having adequate insurance and planning early for your retirement years to build a corpus.

However, at every stage of one’s life the financial requirements would be different. Here we set out some of the crucial elements that should form your financial planning package at each stage of life. Depending on your age, we have tried to construct what could be the possible financial situation and advise you what you should do at each of these stages.

Life Stage 1: Start of one’s career:
Age band: in 20s
Personal Situation: Single, minimum surplus
Goals: Purchasing a vehicle; meeting day-to-day needs in case of sudden job loss

Investment steps:
Buy a health cover
Purchase life cover if your parents are dependent on your income
Create an emergency corpus
Start investment portfolio with small investments in stocks and fixed-income instruments

Life Stage 2: Start of Married life
Age band: 30s
Personal situation: To provide for needs of spouse and young children besides
Goals added: Buying a house, a bigger vehicle, and preparing for family
Investment steps:

Review health insurance cover; consider changing to family floater
Increase life insurance and disability cover to adequate level
Update beneficiaries for insurance
Including spouse as nominee in your investments
Start initial accumulation for retirement by setting aside around 10-15% for the corpus

Life Stage 3: Maturing Family:
Age Band: 40s
Personal Situation: Higher surplus with rising income
Goals added: Added responsibility of providing for children’s education
Investments steps:
Start early to create a corpus for child’s needs, especially higher education
Invest regularly in your child-related goals from your monthly salary
Consider investing in child-specific plan
Continue investing in equities, debt and gold
Ensure your child’s medical costs are covered in your health insurance

Life Stage 4: Nearing retirement
Age: 50s
Personal Situation: Healthy surplus and corpus; lower responsibilities; children earning
Goal: Start providing for retirement years
Investment steps:
Review portfolio to see whether it would meet retirement requirements
If not, increase allocation towards long-term, safer investments
Invest in instruments that generate regular income or provide annuities later
Gradually shift money to less-riskier investments such as bonds and debt mutual funds
Increase health insurance cover

Life Stage 5: Retirement years
Age band: 60s and above
Personal situation: Spouse only dependent
Goal: To have portfolio that generated regular and adequate cash flow
Investment steps:
Take stocks of all your old-age savings including investments in pension funds and provident fund
Shift investments mostly in debt instruments that provide regular income such as Monthly Income Plans
Ensure that you have enough investments that are liquid so that you have money when needed.
Retain a slight exposure to equity (10-15%) if you are still not risk-averse
Ensure you have adequate health cover
Life insurance premiums may be stopped unless you have dependents and have left enough in the corpus for your spouse if you are no longer there
Write a Will for your legacy

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