Page 170 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 9: Retirement Planning-I

9.4.1 Employment Income Notes

As you progress through your working life, your annual employment income will probably be
the largest source of incoming funds you receive and the largest component of your contributions
to your retirement fund.
For your retirement plan, simply write down what your after-tax annual income is. Then subtract
your annual living expenses. The amount left over represents the discretionary savings you
have at your disposal. Depending upon how the numbers work out, you may be able to save a
large portion of your employment income toward your retirement, or you may only be able to
save a little. Be sure to use a budget and include all your recurring expenses. One way to ensure
you save the projected amount for retirement is to treat the amount you plan to save as a
recurring expense.
Regardless, figure out the maximum amount of your employment income you can contribute to
your retirement fund each year. Also, if you are able to work part time during your retirement
years, include this information in your retirement income calculations.

9.4.2 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.
You may not want to include social security benefits in your retirement calculations because, as
we already mentioned, the entire projected amount may not be available at retirement time.
Alternatively, you may wish to include them at a portion of their value, say 50%, to be on the
conservative side.
Either way, figure out what your estimated social security benefits are expected to be in today’s
dollars and add them to your list of retirement income sources. You won’t be able to use this
money to build your nest egg, but it will help to fund your living expenses when you’re retired
and reduce the size of nest egg you will need.

9.4.3 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 list of
retirement income sources.
Similar to your social security benefits, the funds from your employer plan can help cover your
living expenses during your retirement. However, most employer plans have rules regarding
the age at which you can start receiving payments. Even if you quit working for your company
at age 50, for example, your employer plan may not allow you to begin receiving payments
until age 65. Or they may allow you to begin receiving payments early, but with a penalty that
reduces the monthly payment you receive. Talk to your plan provider to determine what rules
apply to your employer plan and consider them when you are making your retirement plan.

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