How your retirement planning should change as you age

Life changes - and so should your retirement planning. There isn't a simple "one-size-fits-all" plan for retirement saving. For one thing, we all face different circumstances, and for another, life just doesn't follow a completely predictable trajectory. Despite this, there are some broad truths that usually apply to different age groups.

When you're in your 20s

Even though you are possibly earning well below your earning potential, Craig Gradidge, the co-founder and investment specialist at Gradidge Mahura Investments, says, "this age group stands to benefit the most from the power of compounding. They need to start, even if it is with a small contribution."

"The most important things for young people to consider are portfolio suitability and cost structure," says Gradidge. Young savers need to have a portfolio that is engineered to ensure they benefit from compounding. At this age, "you need to have sufficient exposure to growth assets such as listed property and equity."

However, with this exposure comes risk. The advantage of youth from an investment perspective is that you have time on your side - your money has more time to recover from market pullbacks and dips. It is equally important for young savers to consider costs and fees in their investments. "A high cost structure can be a significant drag on portfolio returns over the long term," explains Gradidge.

When you're in your 30s to 40s

From your early to mid-thirties, your expenditure tends to increase. You buy a house. Upgrade your car. Start a family. On the other hand, you are also likely to be far more settled in your career and earn more than in your 20s.

At this stage of your life, says Gradidge, the "issue of debt management becomes critical, as well as protection of incomes" (especially once you have children). It is typically in this stage of your life that you start to incur high levels of debt. Appropriate management of debt is critical to long-term financial success, as over-indebtedness can ruin you.

In this age range, you need to focus on the balance between managing debt and ensuring your retirement saving goes according to plan. There is often a difficult tension between the two because life events tend to be prioritised, leaving little left for saving.

This is a time in your life where discipline in saving is arguably most important. We're quick to look for excuses to use savings to pay down debt, but very few of us have the discipline to actually save the freed-up money once debt is paid off. It's important to distinguish between expensive and inexpensive debt. Paying off credit cards and loans is getting rid of expensive debt. But some debt, like a home loan, might not be that expensive, relatively speaking.

There's no right or wrong answer when it comes to electing to settle debt instead of saving. In theory, you should force your cost of living lower and try to do both. If you have not started saving for retirement, remember that it is never too late to start.

When you're approaching retirement

It's natural for you to become more conservative as you approach retirement, says Gradidge, "especially as your retirement nest egg grows in size. Older people would also have experienced a lot more and seen others lose everything due to imprudent decision-making, or to scams."

Traditional advice suggests you gradually shift out of equities in favour of less risky asset classes, like cash and bonds, as you head towards retirement. However, we're living longer, and advisors are starting to advocate for leaving a greater proportion of your retirement savings in equities for longer. Remember, at age 60, you may very well have another 30 years to live - equal to the amount of time you've been saving until that point!

The tendency to become too conservative as you approach retirement needs to be "managed by your financial adviser to ensure that it does not become too destructive to your financial position over time," says Gradidge. At this stage, it is important to save as much as you can, given you are most likely at your peak-earning potential.

When you've reached retirement

Many guides to saving for retirement do not offer a view of or advice for the actual retirement period. Because it is usually so far in the future and difficult for us to conceptualise, savers tend to think of retirement as an event. "It can be an extremely emotional time for people," says Gradidge. "Many have gotten used to getting up in the morning and going to work, as they have been doing so for 35 or 40 years. And to lose this structure could be quite traumatic."

"Everyone will 'view' retirement differently based on their experiences and own expectations. Those who have saved sufficient capital may look forward to it with a great deal of excitement. Those who have not saved enough may view it with a sense of trepidation. Others may be largely indifferent to the whole matter."

During retirement, your exposure to risk obviously adjusts downward. However, it is important not to become ultra-conservative immediately, as you'll likely forgo significant growth in your portfolio, and very quickly begin to underperform inflation (in effect, the value of your savings will start to decrease).

"The important thing," says Gradidge, "is that the advisor understands where the client is at, and adjusts the advice process and interaction with the client accordingly."