Age based retirement plan

In this article today I’d like to talk about different ways to save for retirement based on your current age. Depending on how old you are at the moment you will need to save in a different way for retirement.

For instance, if you’ve just graduated from college and are 20 something years old, you will need to save differently then if you are 50 years old or 60 years old and getting ready to retire soon. Traditional wisdom holds that younger people can take more risks early on in return for greater rewards, whereas older people should cut back on risks so that they are sure to have enough money set aside for their imminent retirement.

So let’s start out with somebody who has 20 years until retirement, which means you should be in your 30s or 40s. Many people grow complacent because of their company’s 401(k) plan. They think that since they’re socking away 10 or $12,000 a year this early in the game then they should have no problems retiring quite well. The fact of the matter is you may need much more money than that to retire and investing in your 401(k) plan may not be enough.

I suggest you also focus on growth stocks or growth stock funds. Even though, since you are younger, you can afford more risk I would still allocate only 80 to 90% of your portfolio into stocks and keep 10 to 20% in bonds.

If you only have 10 years till retirement, which means you are basically around 50 years old, you should have a pretty good chunk money set aside already which means you should cut back on growth and move towards stability. In this case I suggest 70% of your portfolio should go to stocks and 30% should go to bonds. Within the stock portfolio I suggest around 55 to 60% in large-cap stocks and 15% in mid-cap stocks and another 10 or 15% in small-cap stocks.

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If you’ve only got five years left until retirement it means you should be in your early 60s and it’s time to ease back on any sort of risk from your portfolio. You should keep some of your portfolio in stocks to combat inflation but the majority should definitely be in bonds. A good allocation is 70% bonds and 30% stock with the stock portion divided mostly of large-cap stocks or a stock index fund of some sort like an S&P 500 index fund.

However you ultimately decide to allocate your investment portfolio, the most important thing is to take action and begin somewhere even if it’s just investing a couple hundred dollars a month. Until you build up a sizable portfolio it’s easy to just simply purchase an S&P 500 stock index mutual fund that attempts to mimic the broad overall market and is great for people just starting out.