Retirement Planning

the types of retirement

What is retirement planning?

• It is an attempt to find out how much money needs to be saved each month in order to have comfortable retirement.• It refers to the allocation of finances for retirement

to achieve financial independence

Why Retirement Planning?

Importance of Retirement Planning

Why Plan Early?

Phases of retirement

Psychological Effects to the Transition in Retirement

EFFECTS

ASPECTS OF FINANCIAL PLANNING BEFORE ONE RETIRES

Steps in Retirement Planning

Retirement goals

• Financial freedom• Reliable & stable source of income• To be debt free before retirement• Maintain or upgrade the current lifestyle• To be able to meet future expected medical expenses• To pursue a expensive hobby/interest

Retirement Age• A – Ability to live with • G – Grace and • E – Enjoy till you live

What to do at different life stages?

How to determine the size of the corpus?

The size of the corpus is a result of the following tradeoffs

How to determine the size of the corpus?

Factors to be considered

Investment Vehicles

Employee Provident Fund (EPF)

Every salaried employee has a Provident Fund account which is a mandatory saving mechanism imposed by Government of India.

PF requires you to contribute 8-12% of your basic salary and your employer invests an equal amount.

The fund offers an interest rate of 8.75% compounded every year. However you can contribute more than this 12% of your basic salary.

Voluntary Provident Fund (VPF)

• VPF is nothing but this extra contribution i.e. one can contribute more than this 12% and up to 100% of ones basic salary to the EPF account.• This is not mandatory and is done voluntarily• VPF earns the same interest rate as PF does; that is 8.75%

compounded yearly.• VPF applies only to salaried class.

Public Provident Fund (PPF)

• Public Provident Fund is a generic fund to all, immaterial if one is salaried or not.• PPF is opened through a post office or from a SBI branch.• The fund earns only 8.7% interest compounded annually and has a

maturity term of 15 years.

Savings scheme

Reverse Mortgage

Loan given to senior citizens by converting the equity in a house property into an income stream.

The scheme involves the borrowers (senior citizens) pledging their house property to a lender (scheduled bank) in return for a lump sum or periodic payments spread over the borrower’s lifetime.

The home owner is not obliged to repay the loan during his lifetime. On his death or leaving the house permanently, the loan is repaid

along with accumulated interest, through sale of the house property. Any excess amount will be remitted to the borrower or his heirs.

What is Portfolio Rebalancing???

Portfolio RebalancingThe rebalancing of investments is the action of bringing a portfolio that has deviated away from one's target asset allocation back into line. For example, Original target asset allocation was 50% stocks and 50% bonds. Stocks performed well during the period & increased the stock weighting of your portfolio to 70%. You decide to sell some of your stocks and buy bonds to get it back to your original target allocation of 50/50.

rebalancing strategies


FORMULA:•$ Stock Investments = M * (TA – F)•M – investment multiplier (higher risk tolerance, higher "M")•TA – total portfolio assets•F – allowable floor (minimum safety reserve)

How does Rebalancing Help ?

Where should they Invest ?

They follow a general “100 minus your Age” rule to determine the allocation to risky assets in the financial portfolio.

ASSET CLASS Exposure (25-40 yrs)

Exposure(40-60 yrs)

Exposure(60 +)

Equity + MF + SIP, etc

70% 50% 25%

Gold & Other commodities

10% 10% 5%

Fixed Income (PPF, EPF, NSC,

bank FD)

20% 40% 70%

How much Corpus to Liquidate & When ?

• The thumb rule is not to withdraw more than 5% of the corpus in the first five years of retirement• Progressively increased to 10% by the time the retiree

is 70. • At 80, even a 20% annual drawdown rate would be

considered safe.

Risks Relating to Retirement Planning

Risk Drivers Associated Risks

Absence of retirement plan Planning Risk

Running out of money in retirement Longevity Risk

Loss of purchasing power Inflation Risk

Underestimated retirement corpus Risk of outliving money

Reduction in value of corpus Market Risk

Deteriorating Health Health care risk

Loss of ability to live independently Dependency Risk

Death of spouse Companionship Risk

How to Tackle such Risks ?

Recommendations

Thank You

“Age is only a number, a cipher for the records. A man can’t retire his

experience. He must use it”- Bernard Baruch

Retirement Planning

Documents

Transcript of Retirement Planning