| RETIREMENT PLANNING
S. Varadarajan
Till a decade back, people used to look forward to retirement
as a relief from the monotony of working life and the restrictions
it placed on them. They would be planning to enjoy retired life
by spending time with the members of the family, particularly
with grand children.
The situation is much different to-day Though many of us tend
to believe otherwise, the problems faced by a person, who has
just reached stage of starting a career of his own.
In 1998 the global life expectancy at high was 66 years as
against 48 in 1955.
The economic health and social security condition of Indian
senior citizens is a serious issue but one that has been neglected
by social scientists and policy makers. About 10% of the elderly
citizens above 60 are estimated to receive pensions from the
central and state Govt.'s. The rest of the senior citizens who
do not receive pensions are unlikely to have economic security.
Hence every working individual has to contend with a smaller
working span and perhaps a longer retired life.
It is imperative for an individual to think about the following
issues affecting him personally or his family or both together.
- 1) The level of standard of living he would like to maintain
after his retirement.
- His present capacity to save (Disposable income) to provide
a regular retirement income.
- Estimated life expectancy at the time of retirement.
- Additional responsibilities he has to shoulder on his retirement.
- Provision for unexpected emergencies like hospitalisation.
accident etc.
Retirement planning cannot stand in isolation and has to relate
to the overall financial needs of the individual and his family.
The fund accumulation through payment of premium over a long
period leads to accumulation of sizable retirement fund. It
has also risk cover element which provides financial security
to the individuals family in case of his death during the term
of the policy
There is no time like the present to start retirement planning
regardless of the age.
Persons aged 40 to 60 have to have into consideration the following.
1) Acquiring sufficient wealth to retire.
2) Using present assets to acquire an income stream during retirement.
3) Considering the length of time spend in retirement to assess
the money needed.
4) Planning to work part time or be self employed.
The way to start planning for retirement is to decide a realistic
amount that will be needed.
Project the income needed to maintain a comfortable standard
of living.
Adjust the retirement income needed for inflation. Identify
likely sources of income in retirement.
Decide on current investments which will create sources of
future retirement income.
People often under estimate the cost of living and therefore
they are under founded. It is wise to keep inflation in mind
when selecting investments and budgeting for living expenses.
As a rule of thumb, the accumulated funds for retirement should
be atleast 10 to 20 times the required annual income just before
retirement.
There is a need for going in for retirement solutions through
planned investment portfolio management. The disposable savings
available as on today are to be meticulously channeled in gainful
investments. Every investment has to be properly secured in
regard to operational cost, payments to inter - mediaries, yield,
accessibility, corpus protection / guarantee performance record
etc. etc. so as to provide the right kind of risk-return tradeoff.
A financial planner has to:
- Understand the clients personal needs and mental attitude
- clients require a longer term and trusting relationship.
- Explain the risk and reward of investments.
- Help clients to develop a plan of action especially if
they are made redundant / retrenched.
- Explain the pitfalls associated with financial aspects
of retirement and / or retirement packages.
- Suggest restructuring or consolidating debts and investments,
and
- Explain options with superannuation. salary packaging risk
protection capital gains from sale of business / assets and
estate planning.
You need to be aware of the psychological stress many clients
experience particularly those facing retrenchment or retirement
no matter how well planned or foreseen the event may be.
To reduce stress in retirement clients need to be encouraged
to set goals plan their life style and plan their finances.
For many pre - retires and retires there should be six key they
elements in their investment decision making process.
SECURITY. LIQUIDITY. ESTIMATED RETURNS. RESISTANCE TO INFLATION
and SOCIAL SECURITY and TAXATION.
Clients often choose and remain with a financial planner because
they believe they earn develop long term trusting relationship
with the advise as a person not an institution.
In addition. clients want the financial planner to listen to
them, have the necessary expertise and clearly explain potential
investment alternatives and outcomes.
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