Retirement Planning
Content
Retirement Planning
the types of retirement
Retirement
on
Superannua
tion
• Retirement on
reaching
maximum
prescribed age
limit for
employment
• Govt.
Servants- 60
yrs
Voluntary
Retirement
Compulsory
Retirement
• Option under
Voluntary
Retirement
Scheme
• Retire earlier
than
superannuatio
n age
• For dismissal
or discharge of
an employee
Retirement
due to
Invalidation
on Medical
Grounds
• physical or
mental
infirmity
• permanently
incapacitated
for public
service
Resignation
from Service
• Another
means to
withdraw from
active working
life
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?
Retain financial independence.
Enjoy living the way you like
Increasing life expectancy
Changing family systems-to nuclear
Ensure your family is not dependent on anyone in your absence
Uncertainty of Social Security and Pension Benefits
Escalating Medical Expenses
Changing people’s perception for seeking financial freedom
Need to to provide for higher inflation adjusted living expenses
Estate Planning
Importance of Retirement
Planning
• Finding Income Resources
• Quality of Life
• Life Expectancy
• Long-Term Care
Why Plan Early?
Longer investment
time frame
Lower risk
Phases of retirement
PHASE 1: Accumulation
PHASE 2: Investment
PHASE 3.1: Active phase
PHASE 3.2: Slow phase
PHASE 3.3: Flat phase
Phases of retirement
• first you actively work for money
Accumulation • Return on your money
Investment
• Right time to decide & invest in
creating corpus
Active phase
• just retired, no major health
concern and actively participating
in the decision making process of
family
Phases of retirement
Slow
phase
• life-getting straight, increased
probability of health concerns,
gradually withdraws from the
world, freely shares wisdom
with others
Flat
phase
• renounced life, enormous health
concerns, little to look forward,
completely withdrawing from the
worldly affairs and dedicating to
spiritual pursuits and almost no
say in family matters
Psychological Effects to the Transition in
Retirement
EFFECTS
Partial Identity
Disruption
Moving to
unfamiliar
geographic
location
Decision
paralysis
Attribution of
experience to
environment
Diminished self
trust
A very
significant life
change
Self description
Identity
diversification
Loathing to
acknowledge
decisions as
regrettable
Not the same
person as at the
beginning of a
career
Assimilation Vs.
Accommodation
Retirement
farewells
Lapsing into
procrastination
Choice dilemma
Experience of a
post retirement
void
Losses:
friendships,
fringe benefits,
perks
Search for
meaningful
engagement in
society
Continuity
theory
Feeling like
nobodies
Personal
counseling
Job as main
basis of identity
“What or who
am I now that I
am retired?”
“What should I
or can I do with
al this time on
my hands?”
EFFECTS
Development
of a
retirement/life
structure
Confluence of
aging and
retirement
Fracture of
familiar roles of
a work/life
structure
Curve of
existence on a
downward
trajectory
Processes of
disengagement
from a job
Looking back at
one’s life
Particularly
difficult for Men
Gender roles
Looking forward
to its last
chapter
Rich source of
self
understanding
Becoming a
Senior
Death anxiety
Critical
nurturing of
social
relationships
End of life
begun to be
more clearly
into view
Healing of
family feuds,
Reconnecting
with neglected
friendships
Primal
motivation for
creating a
meaningful
existence
Meaningful
activities and
Human
relationships
Retirement: a
family transition
Not able to find
“new old
friends” in new
locale
Low
neuroticism,
high
extraversion
SelfActualization
Individuation
Another
developmental
layer of identity
formation
Optimizing one’s
potential
Search of
enlightenment
Systematic selfobservation
ASPECTS OF FINANCIAL
PLANNING BEFORE ONE
RETIRES
A sufficient health cover
• sufficient health cover in place is an imperative
action one must take before retirement.
• Another suggestion is to split the cover across
two insurers, in order to take a higher overall
coverage amount, as well as to de-risk the
cover.
Critical illness cover for self and spouse
• Conditions like heart attack, stroke, cancer,
paralysis among others are covered under
critical illness policies.
• The insured is paid a lump sum amount,
irrespective of hospitalization, unlike a health
insurance policy.
• This is where critical illness policies differ from
health insurance covers, thus explaining the
need to have both the types of policies.
Pay off liabilities
• One should concentrate on paying off
large liabilities like home loan before
retirement. A person should start with
loans which carry the maximum interest
rates and plan repayments at least 10
years before retirement.
Planning investments
• Most retired people have limited income
and therefore investments should be
planned in a such way that they yield a
regular income post retirement.
• One approaches retirement, it is
important to gradually de-risk the
portfolio to safeguard the corpus.
Emergency corpus
•For a retired person, it is
recommended to have at least 18
months of expenses in the form of
an emergency corpus
Adequate corpus for critical goals:
• Normally, critical goals like child’s
education and marriage are completed
for most people before retirement.
However, if for some reason, these goals
are yet to be completed, it is vital to
make sure that there is a sufficient
corpus for them.
Steps in Retirement Planning
What are his retirement goals?
Determine the age & life stage of the retiree?
Calculate the size of the corpus?
Identifying investment vehicles that will enable
the retiree to accumulate the desired corpus
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
Teenage
Working
age
Old age
clients
Enough time
and energy
Obtaining &
accumulating
money
Lot of time &
money
No money
Short on time
Low on
energy
What to do at different life stages?
• Start investing some
amount at regular
intervals
• Start saving for marriage
20s
30s
• Identify your future
financial needs
• Don’t overburden
yourself with too much
debt
• Make provisions for
retirement
• Don’t use your PF money,
take educational loan for
your children
40s
What to do at different life stages?
• Priority – Retirement
savings
• Define your future life
style
• Become debt free
• Retirement rebalancing
50s
60s
• Live your life
• Invest in senior
citizen schemes
How to determine the size of the corpus?
The size of the corpus is a result of the following
tradeoffs
Higher income
& expenditure
today
Higher income
& expenditure
Higher income &
expenditure later
Higher
inheritance
How to determine the size of the corpus?
More
investment risk
More certainty in
retirement
incomes
Buying longevity
insurance
Assuming longevity
risk
Factors to be considered
Life
Expectancy
Retirement
goals
Retirement
age
No of
dependents
on retirement
Current
income &
savings
Inflation
adjusted cash
flow
Current level
of
investments
Risk appetite
Expected rate
of return of
investments
Retirement
benefits such
as PF
Investment
vehicles
Investment Vehicles
Pension
Plans
Savings
scheme
Investments
Reverse
mortgage
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
Post Office Monthly Scheme
Senior Citizen Savings Scheme
National Savings Scheme
Fixed Deposit
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 Rebalancing
The 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
BUY & HOLD
• Buy and hold is an investment strategy where an
investor buys stocks and holds them for a long
time.
• This is based on the view that in the long
run financial markets give a good rate of
return despite some volatility, that is, declines.
rebalancing strategies
Constant-Proportion Portfolio Insurance
• Assumes that as investors' wealth increases, so
does their risk tolerance.
• The basic premise of this technique stems from
having a preference of maintaining a minimum
safety reserve held in either cash or risk free
government bonds
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)
rebalancing strategies
Rebalancing
every year
Rebalancing
every 15
months
Rebalancing when current
allocation is 5% off from
target asset allocation
How does Rebalancing Help ?
Helps Increase Potential Returns
Maintain your Risk Profile
Where should they Invest ?
They follow a general “100 minus your Age” rule to determine
the allocation to risky assets in the financial portfolio.
Exposure
Exposure
Exposure
ASSET CLASS
(25-40 yrs)
(40-60 yrs)
(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 ?
Take up income generating hobbies – e.g. : open a
daycare center for children
Part time job (Use your experience)
If possible, rent house
Reverse Mortgage
Loans against Jewelry
Recommendations
Save 10% of your
income for
retirement
Don't dip into the
corpus before you
retire
Increase
investment as your
income grows
Save 20 times your
post retirement
annual expenses
for corpus
Withdraw 5% a
year initially, then
step up
Borrow for kid's
education, but
save for your
retirement
100 - age = Your
allocation to stocks
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
the types of retirement
Retirement
on
Superannua
tion
• Retirement on
reaching
maximum
prescribed age
limit for
employment
• Govt.
Servants- 60
yrs
Voluntary
Retirement
Compulsory
Retirement
• Option under
Voluntary
Retirement
Scheme
• Retire earlier
than
superannuatio
n age
• For dismissal
or discharge of
an employee
Retirement
due to
Invalidation
on Medical
Grounds
• physical or
mental
infirmity
• permanently
incapacitated
for public
service
Resignation
from Service
• Another
means to
withdraw from
active working
life
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?
Retain financial independence.
Enjoy living the way you like
Increasing life expectancy
Changing family systems-to nuclear
Ensure your family is not dependent on anyone in your absence
Uncertainty of Social Security and Pension Benefits
Escalating Medical Expenses
Changing people’s perception for seeking financial freedom
Need to to provide for higher inflation adjusted living expenses
Estate Planning
Importance of Retirement
Planning
• Finding Income Resources
• Quality of Life
• Life Expectancy
• Long-Term Care
Why Plan Early?
Longer investment
time frame
Lower risk
Phases of retirement
PHASE 1: Accumulation
PHASE 2: Investment
PHASE 3.1: Active phase
PHASE 3.2: Slow phase
PHASE 3.3: Flat phase
Phases of retirement
• first you actively work for money
Accumulation • Return on your money
Investment
• Right time to decide & invest in
creating corpus
Active phase
• just retired, no major health
concern and actively participating
in the decision making process of
family
Phases of retirement
Slow
phase
• life-getting straight, increased
probability of health concerns,
gradually withdraws from the
world, freely shares wisdom
with others
Flat
phase
• renounced life, enormous health
concerns, little to look forward,
completely withdrawing from the
worldly affairs and dedicating to
spiritual pursuits and almost no
say in family matters
Psychological Effects to the Transition in
Retirement
EFFECTS
Partial Identity
Disruption
Moving to
unfamiliar
geographic
location
Decision
paralysis
Attribution of
experience to
environment
Diminished self
trust
A very
significant life
change
Self description
Identity
diversification
Loathing to
acknowledge
decisions as
regrettable
Not the same
person as at the
beginning of a
career
Assimilation Vs.
Accommodation
Retirement
farewells
Lapsing into
procrastination
Choice dilemma
Experience of a
post retirement
void
Losses:
friendships,
fringe benefits,
perks
Search for
meaningful
engagement in
society
Continuity
theory
Feeling like
nobodies
Personal
counseling
Job as main
basis of identity
“What or who
am I now that I
am retired?”
“What should I
or can I do with
al this time on
my hands?”
EFFECTS
Development
of a
retirement/life
structure
Confluence of
aging and
retirement
Fracture of
familiar roles of
a work/life
structure
Curve of
existence on a
downward
trajectory
Processes of
disengagement
from a job
Looking back at
one’s life
Particularly
difficult for Men
Gender roles
Looking forward
to its last
chapter
Rich source of
self
understanding
Becoming a
Senior
Death anxiety
Critical
nurturing of
social
relationships
End of life
begun to be
more clearly
into view
Healing of
family feuds,
Reconnecting
with neglected
friendships
Primal
motivation for
creating a
meaningful
existence
Meaningful
activities and
Human
relationships
Retirement: a
family transition
Not able to find
“new old
friends” in new
locale
Low
neuroticism,
high
extraversion
SelfActualization
Individuation
Another
developmental
layer of identity
formation
Optimizing one’s
potential
Search of
enlightenment
Systematic selfobservation
ASPECTS OF FINANCIAL
PLANNING BEFORE ONE
RETIRES
A sufficient health cover
• sufficient health cover in place is an imperative
action one must take before retirement.
• Another suggestion is to split the cover across
two insurers, in order to take a higher overall
coverage amount, as well as to de-risk the
cover.
Critical illness cover for self and spouse
• Conditions like heart attack, stroke, cancer,
paralysis among others are covered under
critical illness policies.
• The insured is paid a lump sum amount,
irrespective of hospitalization, unlike a health
insurance policy.
• This is where critical illness policies differ from
health insurance covers, thus explaining the
need to have both the types of policies.
Pay off liabilities
• One should concentrate on paying off
large liabilities like home loan before
retirement. A person should start with
loans which carry the maximum interest
rates and plan repayments at least 10
years before retirement.
Planning investments
• Most retired people have limited income
and therefore investments should be
planned in a such way that they yield a
regular income post retirement.
• One approaches retirement, it is
important to gradually de-risk the
portfolio to safeguard the corpus.
Emergency corpus
•For a retired person, it is
recommended to have at least 18
months of expenses in the form of
an emergency corpus
Adequate corpus for critical goals:
• Normally, critical goals like child’s
education and marriage are completed
for most people before retirement.
However, if for some reason, these goals
are yet to be completed, it is vital to
make sure that there is a sufficient
corpus for them.
Steps in Retirement Planning
What are his retirement goals?
Determine the age & life stage of the retiree?
Calculate the size of the corpus?
Identifying investment vehicles that will enable
the retiree to accumulate the desired corpus
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
Teenage
Working
age
Old age
clients
Enough time
and energy
Obtaining &
accumulating
money
Lot of time &
money
No money
Short on time
Low on
energy
What to do at different life stages?
• Start investing some
amount at regular
intervals
• Start saving for marriage
20s
30s
• Identify your future
financial needs
• Don’t overburden
yourself with too much
debt
• Make provisions for
retirement
• Don’t use your PF money,
take educational loan for
your children
40s
What to do at different life stages?
• Priority – Retirement
savings
• Define your future life
style
• Become debt free
• Retirement rebalancing
50s
60s
• Live your life
• Invest in senior
citizen schemes
How to determine the size of the corpus?
The size of the corpus is a result of the following
tradeoffs
Higher income
& expenditure
today
Higher income
& expenditure
Higher income &
expenditure later
Higher
inheritance
How to determine the size of the corpus?
More
investment risk
More certainty in
retirement
incomes
Buying longevity
insurance
Assuming longevity
risk
Factors to be considered
Life
Expectancy
Retirement
goals
Retirement
age
No of
dependents
on retirement
Current
income &
savings
Inflation
adjusted cash
flow
Current level
of
investments
Risk appetite
Expected rate
of return of
investments
Retirement
benefits such
as PF
Investment
vehicles
Investment Vehicles
Pension
Plans
Savings
scheme
Investments
Reverse
mortgage
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
Post Office Monthly Scheme
Senior Citizen Savings Scheme
National Savings Scheme
Fixed Deposit
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 Rebalancing
The 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
BUY & HOLD
• Buy and hold is an investment strategy where an
investor buys stocks and holds them for a long
time.
• This is based on the view that in the long
run financial markets give a good rate of
return despite some volatility, that is, declines.
rebalancing strategies
Constant-Proportion Portfolio Insurance
• Assumes that as investors' wealth increases, so
does their risk tolerance.
• The basic premise of this technique stems from
having a preference of maintaining a minimum
safety reserve held in either cash or risk free
government bonds
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)
rebalancing strategies
Rebalancing
every year
Rebalancing
every 15
months
Rebalancing when current
allocation is 5% off from
target asset allocation
How does Rebalancing Help ?
Helps Increase Potential Returns
Maintain your Risk Profile
Where should they Invest ?
They follow a general “100 minus your Age” rule to determine
the allocation to risky assets in the financial portfolio.
Exposure
Exposure
Exposure
ASSET CLASS
(25-40 yrs)
(40-60 yrs)
(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 ?
Take up income generating hobbies – e.g. : open a
daycare center for children
Part time job (Use your experience)
If possible, rent house
Reverse Mortgage
Loans against Jewelry
Recommendations
Save 10% of your
income for
retirement
Don't dip into the
corpus before you
retire
Increase
investment as your
income grows
Save 20 times your
post retirement
annual expenses
for corpus
Withdraw 5% a
year initially, then
step up
Borrow for kid's
education, but
save for your
retirement
100 - age = Your
allocation to stocks
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
