– Retirement is the point where an individual is not in any sort of employment/ business/occupation. – This normally comes across reaching an identified age, when physical conditions do not enable the person to work any more. – Retirement might likewise be because of individual choice-either due to appropriate pension or personal savings or due to a regular unearned income like interest, rents and so on
. – The retirement age varies from country to nation but it is generally between 55 and 70. – Certain tasks, which are of hazardous nature or of fatiguing nature, might have an earlier retirement age.
Support and Funds.
– Retired persons support themselves either through superannuation, pensions, cost savings or through household (earning kids), as in Indian families. – In some other nations the government supplies the pension advantage to all its residents.
– Retirement financial planning refers to a collection of systems, techniques and processes which support a family’s (client’s) desire to achieve a state of monetary independence.
– It is a procedure of determining the monetary objectives at the point of retirement. – It needs continuous tracking of the progress of the strategy and after that taking adequate remedial steps.
Need For Retirement Preparation.
– Increasing Life Expectancy – Low Returns In Standard Modes Of Cost Savings. – Unexpected Contingencies. – Increasing Medical Cost. – Decreasing Trend Of Joint Family System – Inflationary Trends – Lack Of Social Security Benefits By The State – Pursuing Hobbies – Falling Interest Rates.
Steps In Retirement Planning.
– Choice retirement about the retirement age option. – Setting of financial goals – Conserving of pertinent amounts w.
r.t. objectives – Investing in proper modes – Estimation of net worth – Regular monitoring of financial strategy and incorporate the necessary changes in the strategy.
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 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.
• 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 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.
• 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.
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.
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