Q: I am in my 20s. Do you think I should start saving up and investing for retirement? What is the best way to do so?

A: For the majority of young adults, retirement seems like the last thing to consider as they think that time is on their side.

Yet in retirement planning, it's prudent and wise to start early to provide sufficient time horizon for any investments to ride through the market cycles.

In addition, by creating the habit of saving and investing for retirement early, time will enable you to reap the benefits of both compounding interest and long-term gains.

The first step is to work out your budget and an amount that you can set aside on a regular basis. You will then have to apportion part of the amount to build up an emergency fund. The purpose of the fund is to cater for contingency needs and it is recommended to be about three to six months of your current salary. The rest of the amount is then used for investment purposes.

Your risk appetite will play an important role in determining the type of instruments utilised to execute your retirement plan.

Generally, it's recommended to engage in a combination of investments and insurance. Investments are more commonly used to achieve the growth objective while insurance can be used to protect the investment portfolio from unexpected negative market events or to smooth out the return.

Once implemented, the plan needs to be reviewed at least twice a year to take into account the changes in your financial situation and market conditions. By conducting regular reviews, either independently or with an experienced financial planner, you are able to identify pitfalls to avoid or to leverage on opportunities as they present themselves to enhance your overall rate of return.

This article was first published in The Business Times.