How to save for retirement if you are 30-40 years old: a step-by-step plan

How to save for retirement through investments, how to draw up your personal retirement plan, when to start building a retirement portfolio, what tools it should include and how to properly prepare for retirement so that you have enough for old age.


Is it possible to save up for retirement by starting to invest in 30-40 years? We will figure out the steps where to start, if you have decided to compose your personal retirement portfolio , what instruments and at what point in time it is definitely worth including in it, whether you need to entrust your pension money to professional managers or invest yourself, what is a portfolio for all time and how it works and some simple rules to follow to make your retirement plan work.


✔ Determine the financial goal

✔ Choosing an investment strategy: accumulation period and retirement period

✔ We form a portfolio: which instruments to choose?
✔ What is an all-time portfolio and who is it suitable for?
✔ Key findings and recommendations

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Step 1. Determine the long-term financial goal

If you are thinking about how you will support yourself in retirement, then the main task that you have to solve before you retire is to create the necessary retirement capital. 

 This is the amount of money that will accumulate in your accounts by the onset of retirement age and will bring you regular passive income , sufficient to cover your daily needs and ensure the desired lifestyle. 

Suppose you are 40 years old, you plan to retire in 20 years and would like your retirement income to be at least 100,000 rubles. per month, or 1,200,000 rubles. in year. 

Let’s say the average return on your portfolio in 20 years will be 6% per annum (in reality, the future rate of return , of course, will depend on many factors, it may turn out to be more or less than the one we set for the calculations): 

1,200,000 rubles / 0.06 = 20,000,000 rubles. 

RUB 20,000,000 – this is your pension capital , which you must accumulate over the next 20 years. Now it is important to understand how much you should invest each month in order to accumulate that amount by old age. The easiest way to make such calculations is to use any financial calculator. 

For example, if you have a start-up capital of 100,000 rubles, you are ready to save an additional 35,000 rubles for retirement every month . and expect that the average return on your investment over the next 20 years will be about 8% per annum, then in 20 years you will just reach the desired amount. 

Now let’s move on to the second step – choosing an investment strategy.

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Step 2. Choosing a strategy: accumulation period and retirement period

What is the life cycle of an investor 

As people age and move up the career ladder, their financial goals are constantly changing. The infographic below illustrates a typical investor life cycle . Each stage of the life cycle is associated with a set of different goals that, when included in a long-term investment plan, will guide the investor until retirement. 

Accumulation period 

At the accumulation stage, people are usually just starting their careers, which means that they have relatively little net worth and a decent margin of time before retirement. 

When you are between 20 and 35 years old, there are still more than 30 years of active work ahead. In terms of investment, this is the perfect time to build a more aggressive portfolio aimed at maximizing capital gains. Therefore, during the period of accumulation, it makes sense to keep most of the money (up to 80–90%) in shares. 

Over the long term, stocks rise in value much more than other asset categories. And the presence of a long investment horizon (20 years or more) allows the investor to take on greater risks and more easily survive the periods of short-term instability that stock markets periodically encounter. 

This investment allocation strategy works well in the initial period – the period of capital accumulation. 

Period of vigorous activity 

35-60 years is the age when you, as a rule, are at the peak of your career and earnings, this gives you the maximum opportunities for savings and investments. 

But as you now face a shorter time horizon as an investor, you may naturally want to balance the risks. 

This is the time when it is necessary to gradually change the strategy, reduce risks, switch to more conservative instruments , so that by the time of retirement (if it suddenly happens during a period of some crisis or turbulence), not to lose the accumulated funds. 

While stocks may still play an important role in your portfolio, the asset class allocation is shifting slightly towards safer securities such as investment grade bonds .

The classic proportion of the distribution of assets in a portfolio during this period looks like this: 60% of stocks, 40% of bonds. In simple terms, the 60/40 rule works like this: how old are you, this is the proportion of bonds that should be in your portfolio at the current time. This asset allocation is simple and has been considered the most efficient for the past 40 years. 

The more risk you are still willing to accept, the more this ratio can shift towards equities, such as 70/30. If you wish, you can additionally add gold to your portfolio as an inflation protection tool . 

Retirement age 

The retirement period is another point when it becomes necessary to rethink the investment strategy again . 

During this time, the investor’s risk profile usually becomes as conservative as possible. After all, when a person turns into a rentier and begins to live on interest from his capital, it is important for him to minimize risks in order to preserve the body of capital and maximize passive income. 

Therefore, in most cases, the investor’s portfolio becomes predominantly focused on fixed income instruments . 

At this stage, it is important to understand what kind of regular income from the existing capital in the current conditions you can, in principle, receive. Investment income always depends on market rates in a given period. The returns on market instruments are always correlated with rates. 

So, if the risk-free rate is at the level of 1%, then corporate bonds are unlikely to bring you 10% per annum. 

Based on the general level of market rates, it will be possible to understand what to invest in to maximize passive income . By the way, one of the assets that diversifies well the sources of rental income at the retirement stage is real estate (plus this asset is that it gives a guaranteed income and is less often overestimated). 

Although retirees tend to have minimal appetite for risk (and deposits and low-risk bonds constitute the core of the portfolio ), sometimes even after retirement, investors decide to keep a significant portion of the portfolio in stocks. Why is this happening? 

First, no one has canceled the risk of longevity , that is, the likelihood that you will outlive your retirement savings (although Russia does not have the highest average life expectancy, there are pleasant exceptions). 

In addition, some healthy seniors choose to work in retirement to stay active. This means they have more earning opportunities and are better prepared to recover any losses their portfolio may suffer in the event of increased stock market volatility . 

Plus, it is desirable to have a certain share of shares in rental portfolios, since it is these instruments that, as a rule, are capable of showing significant growth above inflation. 

Finally, many wealthy investors want to transfer their wealth to loved ones after death. And given a longer time horizon, such a portfolio will be better suited to withstand risk and maximize returns from stocks. 

So, we figured out that in accordance with the life cycle of an investor, a typical investment portfolio goes through three main stages during its life. Therefore, it is logical that at each subsequent stage, the types of assets used should be adjusted taking into account the changing investor risk profile. 

Now let’s move on to the next step – the actual formation of the portfolio.

Step 3. Form a portfolio

The two questions you need to answer at this stage are:

  • What mechanisms will you use to invest: independently through a Russian and / or foreign broker, or will you give the funds to private bankers or a management company to manage ?
  • What specific investment instruments will you choose for your portfolio: individual stocks and bonds, ETFs or mutual funds, Russian and / or foreign assets?

Manage yourself or give money to professionals 

Today, you can easily access the stock market in half an hour without getting up from your couch: most Russian brokers offer the possibility of remote account opening, and you can buy and sell instruments directly from your smartphone using special mobile investment applications. 

This means that today every investor is able to decide when and in what to invest on his own, without the help of professional advisers. In addition, the threshold for entering the market starts from several thousand rubles. You just need to choose a reliable intermediary in the person of a broker with adequate service and clear tariff policy. 

The advantage of this approach is that you yourself have complete control over the entire investment process, the choice of assets, risks and costs. 

Minus – you will have to spend quite a lot of time to constantly be in the subject, learn how to analyze assets, understand the laws of the market and make decisions on the portfolio in time. 

An entrance ticket to professional managers is much more expensive, it makes sense if we are talking about large volumes of investments. The advantage is that you spend much less time on issues related to managing your portfolio, your money is handled by professionals whose job is to generate interesting investment ideas and earn you profitability. 

There are also disadvantages: you have to pay for professional advice, these costs are reflected in the final return on your investment. In addition, you cannot assess the risks yourself, while the results of management in fact may turn out to be very different, because the human factor has not been canceled. 

Which tools to choose 

Today, a private investor has at least three ways to invest in Russian and foreign stocks and bonds: in addition to direct investments in individual securities, this is the purchase of mutual funds and ETF shares. 

Each of these methods has its pros and cons – we talked about it in detail here.

  • Purchase of individual securities“+” Regular annuity in the form of coupons on bonds and dividends on shares; independent control of market risks; the ability to fix the profitability of your investments when buying securities (bonds); the opportunity to earn extra money on the movement of the market; low costs.“-” Low liquidity of the Russian market; low diversification, especially if you entered the market with a small amount; large time costs for maintaining the portfolio; difficulties with investing in the global market.
  • ETF (index funds)“+” Low entry threshold; the ability to collect a diversified portfolio, including from foreign assets; low costs.“-” Absence of regular annuity in the form of bond coupons; there is no way to fix the guaranteed profitability at the entrance; the need to follow the market and the inability to outplay it; a small selection of funds focused specifically on the instruments of the Russian market.
  • Mutual funds“+” Low entry amount, high diversification, professional management; asset protection, thanks to the supervision of the Central Bank.”-” High costs that eat up the final profitability; lack of a guaranteed return on investment; inability to independently control market and credit risks.

After you have decided on the investment mechanism and instruments, you can proceed to the selection of specific assets in accordance with your current investment strategy. By the way, we talked in detail about how to independently collect the bond part of the portfolio here . And here you can read about how to choose the right corporate bonds for your portfolio.

What is an all-time portfolio and who is it suitable for?

One of the fairly common alternatives to building a pension portfolio on your own is choosing a ready-made “universal strategy” that, in theory, works for all investors without exception. 

It is believed that one of the options for a pension portfolio for the “lazy” can be the so-called “portfolio for all time” . 

The idea is to invest for the long term to create a portfolio that will feel equally good in any economic environment. 

Permanent portfolio concept 

Back in the 1980s, American analyst Harry Brown developed the concept of a Permanent Portfolio , consisting of equal shares of stocks, bonds, gold and cash or Treasury bills. Brown considered this combination ideal for investors looking for security and growth in any economic situation.

  • 25% in US equities to ensure high returns during periods of growth.
  • 25% – in long-term US Treasury bonds , which do well during periods of prosperity and during deflation (but perform poorly during other economic cycles).
  • 25% – cash to hedge against periods of “money shortage” or recession. In this case, “cash” refers to short-term US Treasury bills.
  • 25% – in precious metals (gold) for protection during periods of inflation.

In addition, Brown recommended rebalancing the portfolio once a year to maintain a target weight of 25% for each instrument type. 

All Weather Portfolio 

The author of another popular concept of the “all-season” portfolio is the legendary financier Ray Dalio (founder of the largest investment company Bridgewater ), who came up with the idea of ​​the All Weather Portfolio . 

Dalio said that since he cannot predict the future, he needs a portfolio that mitigates the financial consequences of any unexpected economic events – “black swans” and thus withstands any storm. 

All Weather Portfolio becomes especially attractive during times of market turmoil, especially for investors who are risk averse and / or primarily concerned with preserving capital. It has long been known that portfolio diversification reduces risk and volatility. The all-weather portfolio appears to maximize diversification by leveraging different asset classes. This diversification advantage stems from the inherent non-correlation of these assets – for example, when stocks fall, bonds tend to rise. This is convenient for long-term investors who do not want to constantly worry and catch the moments of entry and exit from certain assets. 

Dalio believes that the following four factors influence the value of assets:

  • Inflation.
  • Deflation.
  • Accelerating economic growth.
  • Decline in economic growth.

Based on them, Dalio expects that in different periods we can see 4 “seasons” of the economy:

  1. Inflation is higher than expected.
  2. Inflation is lower than expected.
  3. Higher than expected economic growth.
  4. Economic growth is lower than expected.

Dalio selected asset classes that performed well in each of these periods in order to diversify, which allows for stable growth and small drawdowns. To minimize volatility, the portfolio consists mainly of bonds and only 30% is allocated to stocks.

“Briefcase of the slobber” 

There is also a version of the “lazy” portfolio on Russian soil – in 2010, a teacher, author of articles and training courses on investing, Sergei Spirin proposed the concept of the so-called “lazy portfolio  , which is divided into three equal parts (1/3 each, or 33.33% ): Russian stocks , bonds and gold. 

True, the idea is not just to split the portfolio capital into three equal parts and forget about it for 10–20 years. This is not enough. Since the ratio of assets in a portfolio usually changes over a year (the value of some assets grows, the value of others falls), writes Spirin, the investor’s task at the end of each year is to bring the portfolio structure back to its original state, that is, restore the balance, or rebalance the portfolio. 

According to Spirin, this simple strategy works quite successfully precisely because at the time of rebalancing it stimulates the investor to sell assets at high prices and buy at low prices.

Key findings and recommendations

  • Start implementing your retirement portfolio idea by defining your main financial goal: what kind of retirement capital you need in 20-30 years to meet your daily needs and the desired standard of living. With this figure, you can easily estimate how much you need to invest in retirement each month in order to form your personal retirement fund.
  • Start investing, even with a small start-up capital, and replenish it regularly. All the same, the capital consists mostly of the money deposited, and not the accrued interest.
  • Be sure to reinvest the earned investment income, as this significantly increases the final return on the portfolio.
  • Throughout your life, your portfolio goes through three main stages. Always check your current portfolio structure against your current financial goals. At each subsequent stage on the road to retirement, the composition and type of assets used must be adjusted to reflect the changing risk profile of the investor.
  • Do not forget about diversification not only by asset class, but also by geography: this will reduce country risk.
  • You can collect your pension portfolio yourself or with the help of professional managers. The first option is cheaper, but you will have to independently understand the tools, analyze assets, and assess risks. The second option is more suitable for owners of large capital, but you will have to pay well for professional advice, and no one guarantees a positive result.
  • Use different tools to cover different risk needs; for example, investing in the Russian bond and stock market is easier and cheaper by purchasing individual securities on your own. And in order to invest in foreign markets, the easiest way is to use ETFs and BPIFs.
  • Whether you are using the lazy portfolio concept or following your own strategy, be sure to rebalance the portfolio at least annually, restoring the correct balance of assets in the portfolio in accordance with your current strategy.

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