Is it too late to start setting retirement plan at the age of 40?

Preparation for retirement is simple whatever age you are but it seems challenging for those who are at the age of 40 as there’re not many years left for earning and saving money.

GoBear Financial Health Index, a financial information service provider, conducts a survey about the retirement financial planning behavior of Thai people in 2019. The finding is Thais start searching for information about retirement plans at the age of 32 (not yet set the plan), and start saving their money seriously when they are 41.

Even though 40 years of age may sound too late and people may not have a big sum of money after retirement, but it’s better than not starting anything at all. The good thing about this age is the goal of life after retirement is precise because the expenses spending during retirement are quite accurately calculated.

The advantage at the age of 40 is a job and financial stability as people at this age mostly earn a high income, some expenses and debt are getting lower so they can arrange the high amount of money for retirement plan.

You need to have enough savings for necessary expenses in order to live happily after retirement without being a burden on your family members.

For example, Your retirement plan is to save 4 million baht. Suppose you receive investment profit averagely 5% a year, you need to save 9,002 baht per month (108,024 baht annually) until you reach 60 years old, and then your savings will be 4 million baht.

Suppose after retirement (at the age of 60), you forecast that you may live up to 85. Roughly with 4 million baht, you can spend an average of 12,820 baht per month or 427 baht a day.

The right investment portfolio for the age of 40

People at the age of 40 can take moderate risks in investment. Their financial status is stable and they place importance on setting a financial plan for retirement. Thus, the suitable investment portfolio is a Moderate Portfolio that focuses on Mutual Fund because an investment expert can help manage their funds at all times. They can choose the risk level to match their demand, and some Mutual Funds offer tax privilege.

To manage an efficient portfolio, the investors should balance between accurate profit and profit with continual growth. Therefore, the investment portfolio should consist of some high-risk assets so that profit will be higher than inflation. The strategy of the moderate portfolio is to invest in the medium to long term. That means to hold your investment, don’t adjust the portfolio too often, and focus on the Total Return. Be disciplinary and invest in good proportion as planned; 45-50% in Fixed Income Fund, 30-35% in Stock Mutual Funds, and the rest 10-20% in Property Fund, REITs, and Infrastructure Fund.

Additionally, focusing on RMF which is a stock investment to generate a profit of about 6-8% annually. After that, investing in SSF and general Mutual Fund, respectively.

Although the stock market fluctuates at the moment it’ll gradually rise throughout 20 years of investment before entering the retirement period. Therefore, people at the age of 40 should invest in stocks all the time through Stock Mutual Funds as well as Property Fund, REITs, and Infrastructure Fund because they are safe and generate a consistent profit.

However, people at the age of 40 include several statuses such as single, married without a kid, married with kids, or taking care of their parents. Thus, their investment portfolio may slightly vary. Those who have the burden to take care of others should increase their investment in assets that offer continual profit such as Property Fund, REITs, and Infrastructure Fund or general Mutual Fund that has profit policy, and minimize RMF investment as it doesn’t pay dividends.

Whatever portfolio you invest in, it’s important to verify if the portfolio is in accordance with your style and how the profit is. You may check monthly or quarterly. If you need to adjust your portfolio, do it at the end of the year in case you experience loss from Mutual Fund that offers profit. If there’s no tax condition to retain it until the term ends, you should sell your fund and then find a new and the same type of Mutual Fund instead.

That means each time you adjust the portfolio, it should be kept neutral or we call Portfolio Rebalancing. For example, you receive very good profit from Mutual Fund and if you do nothing, the portfolio in stock investment will be overweight. Portfolio adjustment is to sell stocks for gaining profit and keep the weight of the investment portfolio in good balance.

For example, Investment Portfolio is divided into 50% Stock Mutual Funds and 50% Fixed Income Fund. And 3 months later, the stock market is highly adjusted so the investment in Stock Mutual Funds increased by 60% while Fixed Income Fund dropped by 40%. After that, selling the profit of Stock Mutual Funds 10% and taking that profit to invest in Fixed Income Fund. Finally, the proportion of investment portfolio decreased by 50%, and Fixed Income Fund remains the same at 50%.

The profit from investment in Mutual Fund may be lost during the market downturn or COVID-19 crisis so the proportion of investment in Stock Mutual Funds and Fixed Income Fund are increased accordingly. However, if you’re confident in long-term investment, you should invest more in those two Funds by Dollar Cost Averaging (DCA).

Setting an investment plan when you’re closer to retirement is under pressure and challenging more than preparing yourself in advance. Anyway, nothing is too late. If you’re disciplinary and start setting your plan earlier, you’ll certainly achieve your goal.