Topic: Retirement Planning
Lecture Notes Week 4
Overview:
Retirement planning involves determining retirement income goals and what's needed to
achieve those goals. It is about being prepared for life after paid working period ends financially
as well as all other aspects of life. Retirement planning includes identifying income sources,
sizing up expenses, implementing a savings program, and managing assets and risk.
Retirement planning is the process of setting 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 and risk.
Future cash flows are estimated to gauge whether the retirement income goal is possible.
Factors of Retirement Planning
1. Longevity – It is the possibility that they will live to such an advanced age that they will
deplete their retirement savings and have to rely solely on Social Security and Medicare for
their expenses.
2. Inflation – It erodes the dollar's buying power, which is a major concern for retirees on a
fixed budget. Cost-of-living adjustments let Social Security keep up with inflation. Growth
investments and inflation-adjusted assets are important parts of any retirement portfolio.
3. Market vitality – It is when a market or security experiences periods of unpredictable, and
sometimes sharp, price movements. People often think about volatility only when prices fall,
however volatility can also refer to sudden price rises too.
4. Expenses – These are the living expenses to be related to health care expenses after you
retire, year in and year out
5. Withdrawal strategy – It is a guide about how you take funds from retirement accounts to
help keep you from outliving your savings. It establishes an amount that you can safely
withdraw each year. It may also prevent you from paying unnecessary taxes. Various strategies
address different financial concerns and situations.
Elements of Retirement Planning
1. Eligibility – It is a retirement plan established by an employer that is designed to provide
retirement income to designated employees and their beneficiaries, which meets certain IRS
Code requirements in terms of both form and operation.
2. Compensation – It withholds a portion of an employee's pay until a specified date, usually
retirement. The lump sum owed to an employee in this type of plan is paid out on that date.
3. Contribution – It is the retirement fund is primarily funded by the employees, but employers
usually make matching contributions.
4. Vesting – It is what you earned enough service credit to qualify for a pension benefit once
you meet the minimum age requirements established by your retirement plan.
Components of Retirement Planning
1. Social Security – It is a social insurance or pension system which is of general application and
which provides for paying periodic benefits, or the actuarial equivalent, because of old-age,
death, or disability.
2. Pensions – It is when the employer commits to a specific amount to be paid out to an
employee upon retirement, usually based on factors like salary and years of service.
3. Personal savings – It is designed to take care of your post-retirement days and help you lead
a stress-free life.
Types of Retirement Planning
1. Insurance plan – It is a legal contract that binds both policyholder and the insurance company
towards each other. It has all the details of the conditions or circumstances under which either
the insured individual or policy nominee receives insurance benefits from the insurer.
2. Financial funds – It is a pool of money set aside for a specific purpose. The pool of money in a
fund is often invested and professionally managed in order to generate returns for its investors.
3. Real estate - Investing in real estate is one of the oldest forms of investing and many people
consider it to be a safe investment compared to other more volatile investments like stocks.
This is because traditional real estate investing, or buying rental properties, provides more
stability than the stock market does.