Personal Financial Planning - retirement Planning

Asset - Personal Financial Planning - retirement Planning

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Advances in curative science have resulted in population living longer. This growth in life expectancy makes resignation planning even more crucial. Furthermore, with best affluence, there is also an growth in request for a best lifestyle during retirement.

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The objective of resignation planning varies depending on circumstances, and usually includes:

- Maintaining a self sufficient pre-retirement acceptable of living
- Coping with increasing health care cost
- safety of asset and against personal liability
- Providing for dependents
- Estate planning

The process for resignation planning:

Step 1: Overcome Obstacles
Step 2: rule Goals
Step 3: Measurement
Step 4: Reference Point
Step 5: ample Plan

Overcoming The Road Blocks

There is only a puny period of accumulation and a continuous period of consumption. The first step is to overcome the many obstacles hindering resignation planning. These contain spending beyond means, unprepared for unexpected expenses (like repairs), inadequate guarnatee (like asset loss, curative bills), tapping into resignation funds for other purposes (like upgrading house, holidays), etc.

(1) Aim to save at least 10% of income and gradually growth it to 20% when it is nearer to retirement. This accumulates towards the resignation funds and helps to accustom to a resignation lifestyle within financial means.

(2) establish an crisis fund of at least 6 months of income that is detach from the resignation planning fund. The will be used for risk retention, covering for unexpected expenses without drawing on the resignation funds.

(3) Have sufficient insurance. A major crisis will be a huge drain on all of the savings, it is best to transfer this risk by being adequately covered.

(4) rescue for other specific purposes should be saved for separately. It will derail the resignation plans due to the shortfall.

Determine resignation Goals

Depending on the circumstances, the goals will vary from private to individual. Some common areas to consider:

(1) Lifestyle.
- Housing: Same house, mortgage remaining, upgrade, downgrade, migrate.
- Leisure: pursuit of hobbies like golf, yoga, charity or religious activities.
- Travel: Overseas holidays, car ownership.

(2) Age of retirement.
- The last day to have to work or the last day to want to work.
- Early resignation due to corporate issues, health, care giving concerns, etc.

(3) Health.
- Coping with increasing health care cost.
- health screening.
- Dental care.

(4) Estate planning.
- Passing on the wealth eventually.

(5) Caring for dependents.
- bodily or curative care for elderly parents.
- Providing for children not yet independent or siblings requiring aid.

Measuring The Finance Required

From the above goals, the required amount needs to be quantified.

(1) Lifestyle and dependent expenses. An assessment is about 60% of pre-retirement income.
(2) task the resignation age. The statutory resignation age is 62 years old.
(3) health expenses. Total up the amount of guarnatee premiums and health screening cost.

In addition, some assumptions need to be made:

(1) Inflation rate. The median historical inflation rate in Singapore is about 1.5%.
(2) venture returns. Depending on the choice of investment, this varies significantly.
(3) Life expectancy. A reference will be the natural death ages of great-grandparents, grandparents or parents. The median age is 78 for males and 82 for females, and this median is increasing.

Reference Point

The current position needs to be analyzed so as to rule the strategies to accomplish the goals.

(1) Current age. amount of years to get funds before retirement.
(2) Current health. Deteriorating health will be more of an immediate concern.
(3) Financial position. amount of savings, assets, liabilities, current income, expenses.
(4) Existing plans. Cpf, Srs, guarnatee and investments already in place.

Overall Plan

Depending on which stage on the resignation plan, the coming to adopt will be different.

(1) Accumulation Period
The period when one starts to save for resignation until about 10 years prior to retirement. The focus will be on the shortfall of funds required for resignation form the current reference point. The main strategy will be on rescue to invest. venture will be covered in a later topic.

(2) Transition Period
The period about 10 years just prior to retirement. As resignation draws nearer, the goals come to be clearer. It is leading to report if the desired lifestyle can be achieved with the funds or if more savings is required. The funds accumulated earlier will also need to be gradually repositioned into less risky investments.

(3) resignation Period
This continues throughout since retirement. The funds will be used to originate current income. Some considerations during this period:
- buy of Annuities (Cpf Life)
To furnish a guaranteed income for life. Recommended to buy to cover for the minimum monthly living expenses required.
- Maximize use of property
Reverse mortgage, downgrading, renting out spare rooms can be thought about for further income.
- Work
To possibly work on a part time basis, as a consultant or run a business.

As with all plans, it will need to be continuously reviewed when personal circumstances turn (like a newborn or divorce), external shop conditions affecting investments, or introduction of new policies (like turn of statutory resignation age or Cpf rules).

Use of the present Value and hereafter Value calculations covered earlier will need to be used to give a best assessment of the amount needed. A uncomplicated example:

John Doe in good health, age 40, intends to retire at age 60, current income is ,000 annually.

Assumptions: Projected expenses at resignation is 60% of pre-retirement income, income will growth 3% annually, inflation is 2%, venture returns is 7%, life span will be till age 80, will carry on to stay at current residence.Cpf contributions generally used for housing and refund of loan and has not started any resignation plans.

Pv = 60,000, 1/Y = 3%, N = 60 - 40 = 20; Fv = 108,367.
Therefore, pre-retirement income needed per year = 60% of Fv = ,020

Pmt = 65,020, 1/Y = 7% - 2% = 5%, N = 80 - 60 = 20; Pv = 0,293
Total resignation fund needed at point of resignation = 0,293

Fv = 810,293, 1/Y = 7%, N = 60 - 40 = 20; Pmt = 19,765
Amount needed to save per year is ,765 or ,647 per month.

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