An individual's earning life could be separated into four stages until retirement. The first being the age-group of (25-35), which represents growth and accumulation, followed by a stable income age group of (35-45). The last two age-group consists of (45-55) and (55-65) which are the years of settling down followed by a well-planned retirement respectively. Individuals could find themselves in any on this age-group and the below mentioned framework should help them take a better understanding of their financial life at their respective stage as each of the four stages have a different set of to-dos.
This is the age when an individual can accumulate at a rapid pace and has a higher risk tolerance ability. People falling in this age group should focus on aligning their credit card debt and amassing savings to buy a home. The savings should be directed majorly towards equity with 80% into equity and rest in debt instruments. An early entry into equities could help add compounding benefits of the money and young age could weather the market fluctuations.
During these ten years, individuals should concentrate on paying off their mortgage and compare the best interest rates and loan type so as to reap in refinancing benefits. This era marks low interest rate scenario for your loans and hence, is a best time to get rid of the mortgage. The retirement funds should still be directed majorly towards equity portion in between 60 to 80%.
In this age group, individuals should pay maximum focus on paying all of the debts and shift to a balanced or moderate portfolio. The ideal composition is 50% in equity and 20% to 30% in fixed income instruments and remaining in cash. But, if you already have some investment in real-estate then equity portfolio could be restricted to 35% to 40% of total corpus.
The agegroup marks the set in of retirement period, when most of the investment corpus should be transferred to low income yield instruments that are stable and have least risk associated. This is a time to focus on boosting your nest egg through tax friendly ways, but again taking minimal risk. At this time, you might need to adjust your lifestyle to match the retirement corpus collected, in order to last your post-retirement life.