Page 176 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 9: Retirement Planning-I

Notes
Questions
1. Is it a profitable investment for Yashpal?
2. What else investment options can Yashpal opt for? Explain in brief.

9.7 Summary

As a result of an increasingly aging population, governments may be forced to suspend
social security benefits in the future.
The responsibility for financing retirement is being transferred to individuals.

How much money you’ll need to save for retirement will depend on your desired standard
of living, your expenses and your target retirement age.
To determine the size of nest egg, you’ll need to: (1) Decide the age at which you want to
retire. (2) Decide the annual income you’ll need for your retirement years. (3) Add up the
current market value of all your savings and investments. (4) Determine a realistic real
rate of return for your investments. (5) Obtain an estimate of the value of your company
pension plan. (6) Estimate the value of your social security benefits.

Assume that an annual inflation rate of 4% will erode the value of your investments and
adjust your savings plan accordingly to provide yourself with a margin of safety.
Income during retirement may come from the following sources: (1) employment income,
(2) social security, (3) employer-sponsored retirement plans, (4) savings and investments,
(5) other sources of funds, including inheritance money, prizes and lottery winnings, gifts,
raises, bonuses and real estate.
There are several investment options that can be used to achieve your retirement savings
goals. These include, but are not limited to, governments-sponsored vehicles, company
pension plans, other products such as annuities and life insurance.
Beginning to save for retirement at an early age is one of the biggest factors in ensuring
success.

The power of compounding also works with taxes - using tax-deferred investment vehicles
can help you to maximize your rate of savings.

9.8 Keywords

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 based on the data entered.
Retirement Planning: The process of determining retirement income goals and the actions and
decisions necessary to achieve those goals. Retirement planning includes identifying sources of
income, estimating expenses, implementing a savings program and managing assets.

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