Investment and Retirement Planning Essay

Introduction †¢ Retirement is the point where a person is not in any kind of employment /business/occupation. †¢ This usually happens upon reaching a determined age, when physical conditions do not allow the person to work any more. †¢ Retirement could also be due to personal choice-either due to adequate pension or personal savings or due to a regular unearned income like interest, rents etc. †¢ The retirement age varies from country to country but it is generally between 55 and 70. †¢ Certain jobs, which are of dangerous nature or of fatiguing nature, may have an earlier retirement age. Support and Funds †¢ Retired persons support themselves either through superannuation, pensions, savings or through family (earning children), as in Indian families. †¢ In some other countries the government provides the pension benefit to all its citizens. Retirement Planning †¢ Retirement financial planning refers to a collection of systems, methods and processes which support a family unit’s (client’s) desire to achieve a state of financial independence. †¢ It is a process of determining the financial goals at the point of retirement. †¢ It requires constant monitoring of the progress of the plan and then taking adequate remedial measures Need For Retirement Planning †¢ Increasing Life Span †¢ Low Returns In Conventional Modes Of Savings. †¢ Unintended Contingencies. †¢ Increasing Medical Cost. †¢ Diminishing Trend Of Joint Family System †¢ Inflationary Trends †¢ Absence Of Social Security Benefits By The State †¢ Pursuing Hobbies †¢ Falling Interest Rates Steps In Retirement Planning †¢ Decision retirement about the retirement age option. †¢ Setting of financial goals †¢ Saving of relevant amounts w.r.t. goals †¢ Investing in appropriate modes †¢ Calculation of net worth †¢ Regular monitoring of financial plan and incorporate the necessary amendments in the plan. Factors Affecting Retirement Planning †¢ Life style †¢ Personal values †¢ Nature of income- salaried, business or professional; stable job/non-stable job; private job/government job †¢ Number of years left for taking retirement †¢ Inflation rate †¢ Present net worth of a person †¢ Risk appetite of a person †¢ Services of a certified financial planner †¢ Conviction in the retirement planning effort †¢ Seriousness & perseverance for retirement planning Life Expectancy & Career Stability LIFE EXPECTANCY †¢ Life expectancy is the major ruler of retirement planning. †¢ As per the Indian context, still the importance of retirement planning is not clearly identified. †¢ With the increasing life expectancy, high standards of living and high expectations for the upcoming future, pressure is building up for fund allocation, to meet up the needs of retirement. †¢ Longevity of life expectancy has to be kept in mind while making out a retirement plan. †¢ Key factors to be evaluated while making out a retirement plan are present life style, income and capacity to save, family circumstances, level of inflation prevailing in the economy & the standard one would like to maintain at the time of post retirement INDIA & RETIREMENT PLANNING †¢ 90% per cent of India’s total working population is not covered for postretirement life. †¢ The main objective of retirement planning is to create a well funded and safe future for the client. †¢ Financial needs of the client needs to be clubbed between his/her current income and post retirement expenditure. †¢ To maintain up current life style one has to plan to save almost 65 to 85% of current income. Life Cycle †¢ Every phase of life cycle has a different level of income, expenditure and saving. †¢ The first phase of life cycle is the childhood where an individual has no earnings but certain amount of money is spent on him/her (school fees, clothing, food etc). †¢ Second stage comes where the individual may or may not start his real earnings or a stable career. †¢ In the third stage an individual enters a stable career and has good amount of earnings to save and start planning for his/her retirement †¢ Fourth & fifth stage is time period to save maximum and allocate maximum funds for the retirement planning. †¢ In the sixth stage comes the old age. At this stage the savings tend to reduce because of medical expenses, new expenses related to old age etc. †¢ The last two stages of the life cycle is the retirement period where the saving are utilized to cover the real retirement years or retirement costs. Career Stability †¢ Career stability is one of the most important factor which clearly needs to be evaluated to develop a retirement plan. †¢ Fund allocation for retirement is done with the help of surplus earnings of an individual during his/her pre-retirement period. †¢ Stable career and in return stable earnings provides a scope for having well planned and organized retirement plan †¢ Employers also have a important role in retirement planning as they contribute in pension plans other contribution plans etc. †¢ Career stability helps to draw clear anticipation of future earnings can be which helps in retirement planning Major Factors Affecting Career Stability †¢ Job Satisfaction: Job satisfaction covers the factors like the level of pay and benefits, the perceived fairness of the promotion system within a company, the quality of the working conditions, leadership and social relationships, and the job itself. †¢ Alternative opportunities: If the market is opening up for new jobs and careers and individual can provide his works onto those opportunities the career stability can embark for changes. †¢ Employer-Employee Relationship: This issue covers the factors like loyalty of an individual towards the employer, future protection provided by the employer, motivation, leadership, timely appraisals. †¢ Changing economic conditions: The economic conditions of a country like recession cycles, developing sectors, problems related to any particular sector private and public ownership etc also affects the career stability. †¢ There are also various policies and economic strategies of government related to employment & foreign investments etc which have a direct affect on employment scenario. PRE-RETIREMENT COUNSELLING Introduction †¢ It is an planning. interactive part of retirement †¢ In pre-retirement counseling all the basics of the retirement plan are drafted as per the needs and expectations of the client and as per the client’s present and anticipated financial conditions. †¢ Financial planner has to clearly evaluate the needs, attitude & lifestyle of the client to have a strong and trustworthy relationship with the client. Steps For Retirement Plan †¢ Inauguration Of Retirement Plan: Inauguration of retirement plan would depend on life expectancy. If the client starts accumulating funds for his/her retirement early, with small savings & less burden he will be able to achieve the goal. †¢ Desired Retirement Status: This would involve budgeting, income sources and proper asset management etc. Estimated expenditure and sources of income during the retirement years to the client have to be evaluated properly. †¢ Retirement Expenses & Sources Of Income: Clear identification of all the costs & incomes has to be made. Provisions for allocating 65 to 70% of current income for the retirement period should be drawn. Insurance With Retirement Planning †¢ Insurance plans with a cash back or whole life insurance are suitable because they provide insurance as long as the premiums are paid and also accumulates savings, thus it has a cash value. †¢ It also helps to pay off uncovered medical costs, funeral expenses & also acts as an income replacement for survivors. †¢ With increasing life expectancy, and other challenges a life insurance can provide a life-long, worry-free retirement and insurance protection. †¢ Major expenses of the retirement years are the health care costs, health insurance can act as a helping hand in that case to meet up these costs. 26/30 Estate Planning With Retirement Planning †¢ Estate planning is the process of accumulating and disposing of an estate to maximize the returns of the estate owner. †¢ Various tools of estate planning are used like Wills, Trusts, Gifts, Contributions & proper evaluation of Estate taxes. †¢ Estate planning should maintain out the costs of the property and should develop an estate plan to give proper and safe income generation. †¢ Estate plan will cover all the legal formalities and all the documentation regarding future transactions. Tax Planning With Retirement Planning †¢ Savings and investments are interconnected. †¢ Proper management of savings and investment results to tax benefits and these become very important at the time of retirement. †¢ Retirement planner must clearly evaluate the aspects of its liquidity, security, and the most important one the return and tax income over such investments. †¢ Proper tax planning can itself prove out to be a saving tool because with effective tax planning is basic foundation for effective retirement planning.