RETIREMEN

T
Unit 9

PLANNING-1
OBJECTIVES
• After studying this unit, you will be able to:
• Describe the need and objectives of retirement
planning;
• Understand the process of retirement planning:
• Learn about the various sources of income for
retirement planning;
• Know about the various investment options
available for retirement planning.
INTRODUCTIO
N Retirement is one of the most important life events
many of us will ever experience. From both a personal
and financial perspective, realizing a comfortable
retirement is an incredibly extensive process that takes
sensible planning and years of persistence. Even once
it is reached, managing your retirement is an ongoing
responsibility that carries well into one's golden years.
RETIREMENT PLANNING
Retirement planning, in a financial context,
refers to the allocation of finances for [Link] normally
means the setting aside of money or other assets to obtain a
steady income at retirement. The goal of retirement planning is to
achieve financial independence, so that the need to be gainfully
employed is optional rather than a necessity.

The process of retirement planning aims to:

• Assess readiness-to-retire given a desired retirement age and
lifestyle, i.e. whether one has enough money to retire; and
WHY PLAN FOR RETIREMENT
• Before we begin discussing how to plan a successful
retirement, we need to understand why we need to take
our retirement into our own hands in the first place.
UNCERTAINTY OF SOCIAL
SECURITY AND PENSION
BENEFITS
• First off, we need to be up front about the prospects of
government-sponsored retirement - They're not very good.
As we all know, the developing world's populations are
continuing to age, with fewer and fewer working-age people
remaining to contribute to social security systems.
• Private pension plans aren't immune to shortcomings either.
Corporate collapses, such as the high-profile bankruptcy of
Enron at the turn of the century, can result in your employer-
sponsored stock holdings being wiped out in the blink of an
UNFORESEEN MEDICAL
EXPENSES
• While the failure of a social security system may not occur, planning
your retirement on funds you don't control is certainly not the best
option. Even with that risk aside, it's important to realize that social
security benefits will never provide you with a financially adequate
retirement.
• By definition, social security programs are intended to provide a
basic safety net - a bare minimum standard of living for your old
age.
• Without your own savings to add to the mix, you'll find it difficult, if
not impossible, to enjoy much beyond the minimum standard of
ESTATE PLANNING
• Switching to a more positive angle, let's consider your
family and loved ones for a moment. Part of your
retirement savings may help contribute to your children or
grandchildren's lives, be it through financing their
education, passing on a portion of your nest egg or simply
keeping sentimental assets, such as land or real estate,
within the family.
FLEXIBILITY TO DEAL WITH
CHANGES
• As we know, life tends to throw us a curve ball every now
and then. Unforeseen illnesses, the financial needs of your
dependents and the uncertainty of social security and
pension systems are but a few of the factors at play.
RETIREMENT PLANNING:
WHERE WILL MY MONEY GO?
• While employment income seems like the obvious answer,
there are actually many sources of funds you can
potentially access to build you're retirement nest egg. Once
you lay them all out clearly, you can then determine how
much money you'll need to save every month in order to
reach your retirement goals.
RETIREMENT PLANNING:
WHERE WILL MY MONEY GO?
• While employment income seems like the obvious answer,
there are actually many sources of funds you can
potentially access to build you're retirement nest egg. Once
you lay them all out clearly, you can then determine how
much money you'll need to save every month in order to
reach your retirement goals.
EMPLOYMENT INCOME
• As you progress through your working life, your annual
employment income will probably be the largest source of
income funds you receive and the largest component of
your contributions to your retirement fund.
SOCIAL SECURITY
• As we mentioned earlier, social security benefits can
provide a small portion of your retirement income. By
visiting the PPF website of India you can estimate your
retirement benefits (in today's dollars) by using the site's
online calculator.
EMPLOYER-SPONSORED
RETIREMENT PLAN
• You may or may not participate in a retirement plan through
your employer. If you don't, you will need to focus on your
other income sources to fund your retirement. If you do
participate in an employer plan, contact your plan provider
and obtain an estimate of the fund's value upon your
retirement.
• Your plan provider should be able to give you an estimated
value (in today's Rupees) of your retirement funds in terms of
a monthly allowance. Obtain this number and add it to your
CURRENT SAVINGS AND
INVESTMENTS
• Also consider what current savings and investments you
have. If you already have a sizable investment portfolio,
it may be sufficient to cover your retirement needs all by
itself. If you have yet to begins saving for your retirement
or are coming in to the retirement planning game late,
you will need to compensate for your lack of current
savings with greater ongoing contributions.
OTHER SOURCES OF FUNDS
• You may have other sources that will be available to fund
your retirement needs. Perhaps you will receive an
inheritance from your parents before you reach
retirement age or have assets, such as real estate, that
you plan to sell before retiring.
• Whatever additional sources of funds you do happen to
have, be sure to include them in your retirement
projections only if they are certain to occur. You may be
expecting to realize a large inheritance from your
parents, but they may have other plans for their surplus
RETIREMENT PLANNING:
BUILDING A NEST EGG
• There are a myriad of investment accounts, savings plans and
financial products you can use to build your retirement nest egg.
Many countries have government-sanctioned retirement accounts
that provide for tax-deferral while your savings are growing in the
account, thus postponing taxation of your investment earnings
until you withdraw your funds for retirement.
• Due to the wide array of savings methods available (each with
their own pros and cons) and the fact that each individual will have
a different solution based on his or her circumstances and personal
GOVERNMENT - SPONSORED
VEHICLES
• Most governments of developed countries provide a legal
framework for individuals to build retirement savings with
tax-saving advantage. Due to the advantages these
investments accounts offer, there are usually limits
regarding contribution amounts and age limits at which you
will stop enjoying the benefits of those savings plans.
COMPANY PENSION PLANS
• While private businesses have shifted from offering defined -
benefit pension plans to the other forms of employer-
sponsoredlans, such as defined contribution plans, there are
still plenty that to do offer defined -benefit plans to
employee.
OTHER PRODUCTS
• While private businesses have shifted from offering defined -
benefit pension plans to the other forms of employer-
sponsoredlans, such as defined contribution plans, there are
still plenty that to do offer defined -benefit plans to
employee.
RETIREMENT PLANNING: TAX
IMPLICATIONS AND COMPOUNDING THE
EARLY BIRD GETS... THE NEST EGG
• While it's not difficult to understand that building a sufficient
retirement fund takes more than a few years' worth of contributions,
there are some substantial benefits to starting your retirement
savings plan early.
• One of the most important determinants impacting how large your
nest egg can get is the length of time you let your savings grow. The
reason for this is that the effects of compounding can become very
powerful over long periods of time, potentially making the duration
of you're retirement savings plan a much more critical factor than
COMPOUNDING YOUR TAX SAVINGS
• The power of compounding works when it comes
to taxes, too. As we mentioned earlier, it's
important that you use government-sponsored
investment accounts (such as IRAs) as much as
possible while carrying out your retirement plan,
since they will usually afford tax-deferred benefits.
• Of course, this graph is based on the assumption
that the taxable investment account turns over its
portfolio each and every year (i.e., 20% capital
gains tax rate is applied to all capital gains each
year). If the taxable portfolio held on to stocks for
the long term, for example, the capital gains taxes
would be delayed.
• Regardless, it is usually not beneficial to incur
taxes sooner, as opposed to later, and this
example should make it clear that failing to take
THE BOTTOM LINE
• Begin saving for retirements as early as possible
and take full advantage of whatever tax-sheltering
opportunities are available for as long as you can.
KEY WORDS
• Employee Savings Plan: A pooled investment account provided
by an employer that allows employees to set aside a portion of their
pretax wages for retirement savings or other long-term goals.
• Retirement Planner: A practicing professional who helps
individuals prepare a retirement plan.
A retirement planner identifies sources of income,
estimates expenses, implements a savings program and helps manage
assets. Estimating future cash flows and assets is also a central part of
a retirement planner's work. He or she may use a web-based calculator
or software program that will predict future cash flows and assets
KEY WORDS
• Retirement Planning: the process of determining retirement
income goals and the actions and decisions necessary to achieve
those goals. Retirement planning includes identifying sources
income, estimating expenses, implementing a savings program and
managing assets.
THANK YOU