IMPORTANCE OF RETIREMENT PLANNING
• 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 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 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...