P.V. Subramanyam's maiden book on retirement is not about understanding how the financial market functions or how to time the market. Instead, it deals with the most unexplored issue of retirement planning. Clearly, the book seems to have hit the right chord as it is a bestseller having sold over 45,000 copies. A trainer, columnist, blogger and now an author Subramanyam spends a few moments with Cafemutual to talk about retirement planning and how IFAs could incorporate this theme as groundwork for advising clients. Edited excerpts....
How did you get the idea of writing this book on Retirement Planning?
I was surprised to find many US based books on retirement planning, but nothing in the Indian context, hence the plunge. I was asked by my friends in Moneycontrol to write the way I speak. Around 70 per cent of the book was already written and stored electronically. So I just had to collate it.
Given the total absence of social security in India, is the vast majority aware of the importance of retirement planning?
Talking about Indians is wrong because there is a huge section of the population that leads a hand-to-mouth existence. But the educated and the upper middle class have earned more than what they would have expected, thanks to the booming economy. But most of their money is parked here and there. They never sat down to plan their retirement. In our culture, we are conditioned to think of life with our children forever, accepting the joint family, and pretending that everything is fine. It suits the government because people invest their money in products that offer around 8 per cent returns. There is no public debate happening on retirement planning.
While the rich and upper middle class are earning and saving enough for retirement, are the middle and lower middle classes prepared?
No. Many of them are not prepared but they will not accept it because they are happy with the feeling that they have much more wealth than their father. They are content saying 'My father had only Rs 20 lakh while I already have Rs 75 lakh. How much more will I need?'
What are the risks for the people who are 'under-prepared for retirement'?
Life expectancy has gone up compared to what it was in earlier days. So people live longer and are dependent on children. Medical expenses have gone through the roof. So, not being able to buy adequate medical cover and not having enough money to pay for medical expenses are a cause of concern. Children not having enough money to look after the parents can put the entire family in a tight spot.
What about the people in the unorganised and self-employed categories?
I do not really deal with this category and hence, not the right person to comment. It is very rare that such people can understand a NAV based product. The most important requirement is financial inclusion and financial education before they can be asked to do a long term SIP.
What are the key challenges according to you in retirement planning?
There are four key challenges. First is managing your money. People who claim that they can manage their money actually may muck it up. Second is asset allocation. Too much money is in debt and too little in equity, if there is something at all. The third challenge is rising life expectancy. There is a possibility that a person will outlive his or her savings. And the fourth challenge arises from the absence of long term care insurance in India. This could result in increase in medical expenses.
In helping their clients prepare for retirement, should advisors look at the so-called retirement products (Pension plans by life insurance companies, mutual funds)?
They should look at normal investment products and depending on the age of the customer, park a chunk of the money into equity plans. If a person is retiring in 2-3 years, there is an inherent risk in the aggressive portfolio. They should not consider pension plans from life insurance companies. The plans from mutual fund are slightly better. But the charge structure of the insurance plans offered by mutual funds might hurt.
What investment products in your opinion are best suited for retirement planning?
For any goal which is more than 10 years away, it is equity, equity and always equity. For a lesser duration goal, one can have a mix of equity and debt.
How can IFAs grow their business by helping clients save for retirement?
Almost all clients will want to save for their retirement. Younger clients should be asked to start with smaller amounts in SIPs and as they grow older, increase savings through SIPs in more number of funds. Even for older clients, the shift out of equity should happen only at an age of say 70 years! For the advisor, long term SIPs and long term SWPs will ensure a great trail commission and good leads.
Are IFAs using retirement planning as a theme to talk about retirement and investment products?
IFAs don't have a product to sell other than the Templeton India Pension Plan which has a withdrawal lock-in. Even IFAs who are doing big ticket SIPs are not much focused. I don't think earmarking for a goal based investment is happening.
As in the US, retirement planning is nowhere close to becoming a big business in India?
The growth in the mutual fund industry in the US happened because of 401k plus schemes (retirement schemes). There is no such plan in India. No mutual fund company in India ever went to the ministry of finance to demand a product which is 80C deductible and a pension plan. The only two firms who did it were Kothari Pioneer and UTI. There is no choice of how to get your money back in pension products of insurance companies. They decide how much money you will get back and you have to buy an annuity. I got an annuity of five per cent from an insurance company. Now that's minuscule when I can get nine per cent return on a bond issued by leading banks! Buying a good equity fund from a mutual fund company is better than buying a pension plan from an insurance company.
What room do you think could be there for products that are sold as retirement solutions by mutual funds? How good are products offered by mutual funds which rebalance the portfolio after you reach a certain age?
I don't know whether the market has the ability to sell such a product. There are very few people selling Templeton's Pension Plan. The distribution system is still chasing AUM. Not many people are happy to doing an auto pilot mode for 20 years. People think that they can time the market in spite of empirical evidence to the contrary.
National Pension Scheme - how suitable is it?
It's too complicated as of now. I am not sure about the fund management expertise. The rates are too fine but I guess it will surely change. If that is not done then good fund managers will not be willing to come in. I am willing to talk about it only after I see its performance for 4-5 years. Also I am not very sure how the annuity will be priced.
Selasa, 31 Oktober 2017
Kamis, 05 Oktober 2017
Choosing A Retirement Plan For Your Small Business
A qualified retirement plan can be beneficial to employers and employees alike, yet for a small business owner who is busy with daily operations, the time and effort involved in choosing a plan can seem daunting. It does not have to be.
Retirement plans come in two flavors: qualified and non-qualified. A qualified plan is desirable because it provides a vehicle for tax-deferred retirement savings for both the business' employees and its owner, with allowable contributions in excess of those permitted for IRAs. A qualified plan also provides the employer an immediate deduction for the contributions made. Depending on the plan, it can encourage employees to maximize the business' profits and to remain with the employer. Plans can be customized with optional features.
Non-qualified plans do not have to meet many of the requirements imposed on qualified plans, and have a wider range of features and provisions as a result. However, in most cases the employer does not get an immediate tax deduction for a non-qualified plan. Such arrangements also have to avoid "constructive receipt" by the employee in order to defer the employee's taxes until the money is actually distributed. This usually exposes the employee to credit risk if the business fails before the deferred compensation is paid out. Non-qualified plans are sometimes useful, but most small businesses will prefer one of the qualified plan arrangements described in this article.
All of this can leave your head swimming, especially if personal finance is not your area of expertise. To simplify the exercise, think of finding a retirement plan that fits your small business like buying a new car. You should consider what retirement plan vehicle will fit your business' size, needs and budget, as well as offering any special features you want. The more "tricked out" your retirement plan, the more costly it will be to establish and maintain.
The SEP (Simplified Employee Pension) IRA is the bare-bones model that gets you from point A to point B. It is easy to adopt, and typically custodians like Schwab or T. Rowe Price offer a basic form to start one. A SEP can be established as late as the employer's income tax filing deadline, including extensions. After the initial set-up, the employer has no further filing requirements.
With a SEP, the employer makes contributions for all eligible employees. The common threshold for eligibility is an employee who is at least age 21 and who has been employed by the employer for three of the last five years, with compensation of at least $550 during the year. Eligibility standards can be less strict than this if the employer chooses. Contributions are an equal percentage for each employee's income. The maximum contribution for 2013 is 25 percent of compensation, but no more than $51,000 total ($52,000 in 2014). (The same limits on contributions made to employees' SEP-IRAs also apply to contributions if you are self-employed. However, special rules apply when figuring the maximum deductible contribution.) In a year where cash is limited, an employer does not have to make a contribution. SEP contributions are due by the employer's tax filing deadline, including extensions.
A SEP is a great choice for a sole proprietor or a small business with a few employees, where the employer would like to have a retirement savings vehicle that allows larger, tax deductible contributions than does a traditional IRA with minimal fuss and maximum flexibility.
A SIMPLE (Savings Incentive Match Plan for Employees) IRA is also easy to establish and has no ongoing filing requirements for employers. SIMPLE IRAs are only available to businesses with fewer than 100 employees and no other retirement plan in place. These plans operate on a calendar-year basis and can be established as late as October 1.
While only the employer can contribute to a SEP IRA plan, a SIMPLE IRA allows employees to contribute to their own accounts, up to $12,000 in 2013 and 2014. Also, participants age 50 and older can make additional contributions, up to $2,500. The employer can either match employee contributions up to 3 percent of compensation (not limited by an annual compensation limit) or make a 2 percent of compensation nonelective contribution for each eligible employee (limited to an annual compensation limit of $255,000). The employer's matching contribution can go as low as 1 percent when cash is constrained; however, the employer can use this option no more than 2 years out of a 5-year period. Unlike a SEP, a SIMPLE plan requires that the employer contribute each year.
An employer must deposit employees' salary reduction contributions within 30 days of the end of the month in which the money is withheld from employee paychecks. The matching or nonelective contributions are due by the due date of the employer's federal income tax return, including extensions.
All employees who have earned income of at least $5,000 in any prior 2 years and are reasonably expected to earn at least $5,000 in the current year must be eligible to participate in a SIMPLE IRA.
A SIMPLE can be a good choice for a small employer who would like to benefit from the tax deduction for employer contributions while encouraging his or her employees to save for retirement. Many employees will find this sort of plan attractive because it allows for higher contributions than a traditional IRA and requires employer contributions. It entails a greater administrative burden than a SEP, although this burden is still relatively small, and offers less flexibility. If cash flow is not an issue, a SIMPLE plan might be for you.
Once an employer makes a contribution to a SEP or SIMPLE plan, the employee is 100 percent vested in that contribution. Employees can take their contributions with them, even if they quit the next day. If employee retention is a concern, a plan that allows for deferred vesting, such as a Money Purchase Plan (MPP) or Profit Sharing Plan (PSP), may be a better fit. Vesting can either be graduated over a period of years of service or take effect all at once after a certain period of years. These plans are the middle-of-the-line models that provide more features than the most basic plans.
Similar to a SEP, a PSP allows for discretionary contributions by the employer. This is a beneficial feature if the business' cash flow is a concern. The employer contributes what he or she can and the contributions are divided among employees based on a formula set by the plan. This is commonly based on an individual employee's compensation relative to total compensation. Employer contributions are limited to the lesser of 100 percent of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). An employer can deduct amounts that do not exceed 25 percent of aggregate compensation for participants. A plan must be established by the last day of the business' fiscal year. Contributions are due by the business' tax filing deadline, including extensions.
A PSP is a good choice if cash flow is variable. It can motivate workers to increase profits and the likelihood of receiving a contribution. However, many employees might not find it as beneficial as a plan with guaranteed contributions. These employees may prefer a Money Purchase Plan (MPP).
A MPP is similar to a PSP, but it requires an annual contribution of a specific percentage of employee compensation, up to 25 percent. This creates a liability for the business, and thus may not be a good choice if cash flow is uncertain. An MPP must be established by the last day of the business' fiscal year. Contributions must be made by the due date of the employer's tax return, including extensions.
Standard eligibility requirements for both a PSP and an MPP are employees over age 21 and who have at least one to two years of service with the employer. If two years of service are required for participation, contributions vest immediately.
MPPs and PSPs also may allow loans to participants, a feature that employees often find attractive. Loans are usually limited to either (1) the greater of $10,000 or 50 percent of the vested balance or (2) $50,000, whichever is less. Loans must be repaid, with interest, over 5 years, unless they are used to purchase the employee's principal residence.
The vesting and loan features make MPPs and PSPs more difficult to establish and maintain than SEP or SIMPLE plans. Both types of plan require employers to file Form 5500 with the IRS annually. These plans also both require testing to ensure that benefits do not discriminate in favor of highly compensated employees. Employers may also find the administration of plan loans to be burdensome. The added features of MPPs and PSPs make them more costly and complicated than the standard model SEP and SIMPLE plans.
You may choose an MPP or PSP if you would like a plan that encourages employee retention and you can handle the extra paperwork. Whether you choose an MPP or a PSP depends mainly on your cash flow.
The fully loaded model retirement plan is the traditional 401(k). These plans allow employee and employer contributions, vesting of employer contributions (employee contributions are always fully vested), and other options such as loans. These plans can be as basic or as complex as the employer wants. However, with complexity comes cost.
Annual employee contributions for a 401(k) are limited to $17,500 for 2013 and 2014. Participants age 50 and older can contribute an additional $5,500. Combined, the employer and employee contributions can be up to the lesser of either 100 percent of compensation or $51,000 for 2013 ($52,000 for 2014). Employers can deduct contributions up to 25 percent of aggregate compensation for participants and all salary reduction contributions. A 401(k) must be adopted by the end of the business' fiscal year, and contributions are due by the business's tax filing deadline, plus extensions.
An employer's contribution to a traditional 401(k) plan can be flexible. Contributions can be a percentage of compensation, a match for employee contributions, both or neither. However, the plan must be tested annually to determine that it does not discriminate against rank-and-file employees in favor or owners and managers. A Safe Harbor 401(k) does not require discrimination testing but does require the employer to make either a specified matching contribution or a 3 percent contribution to all participants.
Commonly, 401(k) plans must be offered to all employees over age 21 who have worked at least 1,000 hours in the previous year.
A 401(k) is a good option for an employer who would like a plan with salary deferral, like a SIMPLE IRA, but also allows for vesting of employer contributions. An employer considering this sort of plan should be able to afford the contributions and the additional administrative work required. A 401(k) is a good option for larger businesses, where the maintenance of such a plan is less burdensome.
The plans I have described in this article are all defined contribution plans. This mean that the plan determines the contributions made, not the ultimate benefits received. Once the contribution is made, the employee invests it however he or she sees fit. At retirement, the amount the employee can withdraw is dictated by the performance of those investments. Poor investments lead to smaller retirement savings.
Defined benefit plans, in contrast, are the Rolls Royces of the retirement plan world. These plans include traditional pension plans, which pay out a set amount to an employee in retirement. The employer, not the employee, takes on the investment risk and will have to make up most shortfalls if the money originally set aside does not cover the ultimate expense.
Retirement plans come in two flavors: qualified and non-qualified. A qualified plan is desirable because it provides a vehicle for tax-deferred retirement savings for both the business' employees and its owner, with allowable contributions in excess of those permitted for IRAs. A qualified plan also provides the employer an immediate deduction for the contributions made. Depending on the plan, it can encourage employees to maximize the business' profits and to remain with the employer. Plans can be customized with optional features.
Non-qualified plans do not have to meet many of the requirements imposed on qualified plans, and have a wider range of features and provisions as a result. However, in most cases the employer does not get an immediate tax deduction for a non-qualified plan. Such arrangements also have to avoid "constructive receipt" by the employee in order to defer the employee's taxes until the money is actually distributed. This usually exposes the employee to credit risk if the business fails before the deferred compensation is paid out. Non-qualified plans are sometimes useful, but most small businesses will prefer one of the qualified plan arrangements described in this article.
All of this can leave your head swimming, especially if personal finance is not your area of expertise. To simplify the exercise, think of finding a retirement plan that fits your small business like buying a new car. You should consider what retirement plan vehicle will fit your business' size, needs and budget, as well as offering any special features you want. The more "tricked out" your retirement plan, the more costly it will be to establish and maintain.
The SEP (Simplified Employee Pension) IRA is the bare-bones model that gets you from point A to point B. It is easy to adopt, and typically custodians like Schwab or T. Rowe Price offer a basic form to start one. A SEP can be established as late as the employer's income tax filing deadline, including extensions. After the initial set-up, the employer has no further filing requirements.
With a SEP, the employer makes contributions for all eligible employees. The common threshold for eligibility is an employee who is at least age 21 and who has been employed by the employer for three of the last five years, with compensation of at least $550 during the year. Eligibility standards can be less strict than this if the employer chooses. Contributions are an equal percentage for each employee's income. The maximum contribution for 2013 is 25 percent of compensation, but no more than $51,000 total ($52,000 in 2014). (The same limits on contributions made to employees' SEP-IRAs also apply to contributions if you are self-employed. However, special rules apply when figuring the maximum deductible contribution.) In a year where cash is limited, an employer does not have to make a contribution. SEP contributions are due by the employer's tax filing deadline, including extensions.
A SEP is a great choice for a sole proprietor or a small business with a few employees, where the employer would like to have a retirement savings vehicle that allows larger, tax deductible contributions than does a traditional IRA with minimal fuss and maximum flexibility.
A SIMPLE (Savings Incentive Match Plan for Employees) IRA is also easy to establish and has no ongoing filing requirements for employers. SIMPLE IRAs are only available to businesses with fewer than 100 employees and no other retirement plan in place. These plans operate on a calendar-year basis and can be established as late as October 1.
While only the employer can contribute to a SEP IRA plan, a SIMPLE IRA allows employees to contribute to their own accounts, up to $12,000 in 2013 and 2014. Also, participants age 50 and older can make additional contributions, up to $2,500. The employer can either match employee contributions up to 3 percent of compensation (not limited by an annual compensation limit) or make a 2 percent of compensation nonelective contribution for each eligible employee (limited to an annual compensation limit of $255,000). The employer's matching contribution can go as low as 1 percent when cash is constrained; however, the employer can use this option no more than 2 years out of a 5-year period. Unlike a SEP, a SIMPLE plan requires that the employer contribute each year.
An employer must deposit employees' salary reduction contributions within 30 days of the end of the month in which the money is withheld from employee paychecks. The matching or nonelective contributions are due by the due date of the employer's federal income tax return, including extensions.
All employees who have earned income of at least $5,000 in any prior 2 years and are reasonably expected to earn at least $5,000 in the current year must be eligible to participate in a SIMPLE IRA.
A SIMPLE can be a good choice for a small employer who would like to benefit from the tax deduction for employer contributions while encouraging his or her employees to save for retirement. Many employees will find this sort of plan attractive because it allows for higher contributions than a traditional IRA and requires employer contributions. It entails a greater administrative burden than a SEP, although this burden is still relatively small, and offers less flexibility. If cash flow is not an issue, a SIMPLE plan might be for you.
Once an employer makes a contribution to a SEP or SIMPLE plan, the employee is 100 percent vested in that contribution. Employees can take their contributions with them, even if they quit the next day. If employee retention is a concern, a plan that allows for deferred vesting, such as a Money Purchase Plan (MPP) or Profit Sharing Plan (PSP), may be a better fit. Vesting can either be graduated over a period of years of service or take effect all at once after a certain period of years. These plans are the middle-of-the-line models that provide more features than the most basic plans.
Similar to a SEP, a PSP allows for discretionary contributions by the employer. This is a beneficial feature if the business' cash flow is a concern. The employer contributes what he or she can and the contributions are divided among employees based on a formula set by the plan. This is commonly based on an individual employee's compensation relative to total compensation. Employer contributions are limited to the lesser of 100 percent of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). An employer can deduct amounts that do not exceed 25 percent of aggregate compensation for participants. A plan must be established by the last day of the business' fiscal year. Contributions are due by the business' tax filing deadline, including extensions.
A PSP is a good choice if cash flow is variable. It can motivate workers to increase profits and the likelihood of receiving a contribution. However, many employees might not find it as beneficial as a plan with guaranteed contributions. These employees may prefer a Money Purchase Plan (MPP).
A MPP is similar to a PSP, but it requires an annual contribution of a specific percentage of employee compensation, up to 25 percent. This creates a liability for the business, and thus may not be a good choice if cash flow is uncertain. An MPP must be established by the last day of the business' fiscal year. Contributions must be made by the due date of the employer's tax return, including extensions.
Standard eligibility requirements for both a PSP and an MPP are employees over age 21 and who have at least one to two years of service with the employer. If two years of service are required for participation, contributions vest immediately.
MPPs and PSPs also may allow loans to participants, a feature that employees often find attractive. Loans are usually limited to either (1) the greater of $10,000 or 50 percent of the vested balance or (2) $50,000, whichever is less. Loans must be repaid, with interest, over 5 years, unless they are used to purchase the employee's principal residence.
The vesting and loan features make MPPs and PSPs more difficult to establish and maintain than SEP or SIMPLE plans. Both types of plan require employers to file Form 5500 with the IRS annually. These plans also both require testing to ensure that benefits do not discriminate in favor of highly compensated employees. Employers may also find the administration of plan loans to be burdensome. The added features of MPPs and PSPs make them more costly and complicated than the standard model SEP and SIMPLE plans.
You may choose an MPP or PSP if you would like a plan that encourages employee retention and you can handle the extra paperwork. Whether you choose an MPP or a PSP depends mainly on your cash flow.
The fully loaded model retirement plan is the traditional 401(k). These plans allow employee and employer contributions, vesting of employer contributions (employee contributions are always fully vested), and other options such as loans. These plans can be as basic or as complex as the employer wants. However, with complexity comes cost.
Annual employee contributions for a 401(k) are limited to $17,500 for 2013 and 2014. Participants age 50 and older can contribute an additional $5,500. Combined, the employer and employee contributions can be up to the lesser of either 100 percent of compensation or $51,000 for 2013 ($52,000 for 2014). Employers can deduct contributions up to 25 percent of aggregate compensation for participants and all salary reduction contributions. A 401(k) must be adopted by the end of the business' fiscal year, and contributions are due by the business's tax filing deadline, plus extensions.
An employer's contribution to a traditional 401(k) plan can be flexible. Contributions can be a percentage of compensation, a match for employee contributions, both or neither. However, the plan must be tested annually to determine that it does not discriminate against rank-and-file employees in favor or owners and managers. A Safe Harbor 401(k) does not require discrimination testing but does require the employer to make either a specified matching contribution or a 3 percent contribution to all participants.
Commonly, 401(k) plans must be offered to all employees over age 21 who have worked at least 1,000 hours in the previous year.
A 401(k) is a good option for an employer who would like a plan with salary deferral, like a SIMPLE IRA, but also allows for vesting of employer contributions. An employer considering this sort of plan should be able to afford the contributions and the additional administrative work required. A 401(k) is a good option for larger businesses, where the maintenance of such a plan is less burdensome.
The plans I have described in this article are all defined contribution plans. This mean that the plan determines the contributions made, not the ultimate benefits received. Once the contribution is made, the employee invests it however he or she sees fit. At retirement, the amount the employee can withdraw is dictated by the performance of those investments. Poor investments lead to smaller retirement savings.
Defined benefit plans, in contrast, are the Rolls Royces of the retirement plan world. These plans include traditional pension plans, which pay out a set amount to an employee in retirement. The employer, not the employee, takes on the investment risk and will have to make up most shortfalls if the money originally set aside does not cover the ultimate expense.
Sabtu, 23 September 2017
Retirement Planning - Plan Your Retirement For Income Through Mutual Fund Investment
Most of the people I have met have not planned for their retirement as they say 'future is unpredictable and we need to live in present' but my dear friend's future is the outcome of present, our present will decide our future. When we think of retirement we generally think of old age, a period when you have to give up the job and sit at home doing nothing. Contrary to the fact, most of the retiree lives a very active life. We need to seriously consider out planning towards retirement because once we retiree our income stops coming but our expenses remain as it is and in some cases it rises with the rising inflation.
In this regard mutual fund has turned out to be the right answer for making retirement planning easier and safer. Mutual fund being managed by professionals is a key to effective retirement planning.
Some people like it. Some people don't but the fact is that retirement is a reality for every working person. Most young people today think cannot think of retirement as reality as they believe in 'living at present'. However, it is important to plan for your post-retirement life if you wish to retain your financial independence and maintain a comfortable standard of living even when you are no longer earning. This is extremely important, because, unlike developed nations, India does not have a social security net. In India people still depend upon bank savings and fixed deposits for retirement purpose, which is unfortunately inadequate.
Retirement Planning acquires added importance because of the fact that though longevity has increased the number of working years haven't, so you end up spending the last phase of your life without earning.
In simple words, retirement planning means making sure you will have enough money to live on after retiring from work. Retirement should be the best period of your life, when you can literally sit back and relax or enjoy your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. To achieve a hassle-free retired life, you need to make prudent investment decisions during your working life, thus putting your hard-earned money to work for you in future.
With the special features of mutual funds like Systematic Investment Plan, Systematic withdrawal plan, systematic transfer plan in addition to other unique features of different funds, the investor can easily plan for its post retirement requirements and ways to achieve it.
Unlike many other countries of west, in India we do not have state-sponsored social security for the retired people. While you may be entitled to a pension or income during retirement, but will it be sufficient post retirement.
Although the compulsory savings in provident fund through both employee and employer contributions should offer some cushion, it may not be enough to support you throughout your retirement. That is why retirement planning is extremely important for every one. More over with mutual funds the investors can actually plan for themselves and also achieve their planned objectives. As compared to direct equities this option of mutual fund is much safer for planning your retirement corpus.
There are many reasons for the working individuals to secure their future emergence of separate families and its attendant insecurity, increasing uncertainties in personal and professional life, the growing trends of seeking early retirement and rising health risks are among few important risks. Besides falling interest rates, also the sustained increase in the cost of living make it a compelling case for individuals to plan their finances to fund their retired life.
Planning for retirement is as important as planning your career and marriage. We need to take conscious and careful decisions to prepare for our retirement. Life takes its own course and from the poorest to the wealthiest, every one gets older with time. We get older every day, without realizing. With our coming old age we tend to become more understanding to the facts of life and realize the importance and impact of retirement. The future depends to a great extent on the choices you make today. Right decisions with the help of proper planning, taken at the right time will assure smile and success at the time of retirement.
In my words, retirement planning means making sure you will have enough money to live on after leaving your work. Retirement should be that period of your life, when you can sit back and relax. Retirement should bring more of enjoyment in your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. Most of the people live their worst life during retirement. To achieve a hassle-free retired life, you need to make right investment decisions during your working life, thus putting your hard-earned money to work for you in future. If you are not very aware of the investment that you need to undertake then you can easily take help of online advisers to help you with your retirement plan through mutual funds. The earlier you start the better it is for you.
In this regard mutual fund has turned out to be the right answer for making retirement planning easier and safer. Mutual fund being managed by professionals is a key to effective retirement planning.
Some people like it. Some people don't but the fact is that retirement is a reality for every working person. Most young people today think cannot think of retirement as reality as they believe in 'living at present'. However, it is important to plan for your post-retirement life if you wish to retain your financial independence and maintain a comfortable standard of living even when you are no longer earning. This is extremely important, because, unlike developed nations, India does not have a social security net. In India people still depend upon bank savings and fixed deposits for retirement purpose, which is unfortunately inadequate.
Retirement Planning acquires added importance because of the fact that though longevity has increased the number of working years haven't, so you end up spending the last phase of your life without earning.
In simple words, retirement planning means making sure you will have enough money to live on after retiring from work. Retirement should be the best period of your life, when you can literally sit back and relax or enjoy your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. To achieve a hassle-free retired life, you need to make prudent investment decisions during your working life, thus putting your hard-earned money to work for you in future.
With the special features of mutual funds like Systematic Investment Plan, Systematic withdrawal plan, systematic transfer plan in addition to other unique features of different funds, the investor can easily plan for its post retirement requirements and ways to achieve it.
Unlike many other countries of west, in India we do not have state-sponsored social security for the retired people. While you may be entitled to a pension or income during retirement, but will it be sufficient post retirement.
Although the compulsory savings in provident fund through both employee and employer contributions should offer some cushion, it may not be enough to support you throughout your retirement. That is why retirement planning is extremely important for every one. More over with mutual funds the investors can actually plan for themselves and also achieve their planned objectives. As compared to direct equities this option of mutual fund is much safer for planning your retirement corpus.
There are many reasons for the working individuals to secure their future emergence of separate families and its attendant insecurity, increasing uncertainties in personal and professional life, the growing trends of seeking early retirement and rising health risks are among few important risks. Besides falling interest rates, also the sustained increase in the cost of living make it a compelling case for individuals to plan their finances to fund their retired life.
Planning for retirement is as important as planning your career and marriage. We need to take conscious and careful decisions to prepare for our retirement. Life takes its own course and from the poorest to the wealthiest, every one gets older with time. We get older every day, without realizing. With our coming old age we tend to become more understanding to the facts of life and realize the importance and impact of retirement. The future depends to a great extent on the choices you make today. Right decisions with the help of proper planning, taken at the right time will assure smile and success at the time of retirement.
In my words, retirement planning means making sure you will have enough money to live on after leaving your work. Retirement should be that period of your life, when you can sit back and relax. Retirement should bring more of enjoyment in your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. Most of the people live their worst life during retirement. To achieve a hassle-free retired life, you need to make right investment decisions during your working life, thus putting your hard-earned money to work for you in future. If you are not very aware of the investment that you need to undertake then you can easily take help of online advisers to help you with your retirement plan through mutual funds. The earlier you start the better it is for you.
Kamis, 07 September 2017
Early Retirement Planning Is Best
Retirement planning need not be just gardening or reading. A well planned retirement scheme could give you more of life's benefits with a whole lot of thrilling experiences without having the hassle of tending to children or grandchildren. To plan a proper retirement life one would need time, commitment, adjustment, detailing and proper calculating for the future.
As it is well known that nobody could predict the future and the growth of inflation it is essential that every individual makes a proper retirement plan. With the days of joint families gone, due to great westernization of all countries imitating the US and the UK, today's generation prefer nuclear families.
How many of us today have planned for our retirement well in advance? We could be just counted, compared to the vast population in our countries. So many of us having been employed in Government organizations generally tend to forget about retirement plans, as since the organization provides us with a pension after retirement. But have we ever looked into the aspects of sufficiency of the provided amount. In most cases the amount provided as a pension scheme is barely sufficient to pay for housing itself let alone the need for other extracurricular activities for special occasions and holidays.
Hence a special government or non-government retirement plan is essential for every individual. When making out a retirement plan one should ensure that all needs and requirements are met with simple and easy operational schemes. As retirement in itself means old age, it would be improper to go around following on the organization for implementation of schemes.
To ensure making the best for the retirement Plan, proper calculation of your current age, expected age of retirement, life expectancy, years after retirement, current earnings, expected annual growth in income, annual income at retirement age, rate of return on retirement corpus, inflation rate and inflation adjusted rate of return/real rate of return should be jotted and taken into consideration.
If all of the above aspects have been looked in to, there is no doubt that the right retirement plan could be organized. However special care is to be taken into account as a comparison of what you would earn or earned as against what you owe. A home based business could provide some sort of stability if not all. Getting a clear picture of what you would get on retirement as against what you would like to have and do after retirement is very essential.
The process of retirement planning aims to assess your readiness to live the second part of life in full as the first part, and to improve actions for the readiness to retire. Retirement planning also touches upon several other aspects of financial, medical and individual, needs of the person. Since planning is about the future, domains need to extend beyond current state description and address uncertainty, volatility and change of dynamics. A well planned retirement would provide total peace, happiness and stable life after retirement. This is mandatory for every individual.
As it is well known that nobody could predict the future and the growth of inflation it is essential that every individual makes a proper retirement plan. With the days of joint families gone, due to great westernization of all countries imitating the US and the UK, today's generation prefer nuclear families.
How many of us today have planned for our retirement well in advance? We could be just counted, compared to the vast population in our countries. So many of us having been employed in Government organizations generally tend to forget about retirement plans, as since the organization provides us with a pension after retirement. But have we ever looked into the aspects of sufficiency of the provided amount. In most cases the amount provided as a pension scheme is barely sufficient to pay for housing itself let alone the need for other extracurricular activities for special occasions and holidays.
Hence a special government or non-government retirement plan is essential for every individual. When making out a retirement plan one should ensure that all needs and requirements are met with simple and easy operational schemes. As retirement in itself means old age, it would be improper to go around following on the organization for implementation of schemes.
To ensure making the best for the retirement Plan, proper calculation of your current age, expected age of retirement, life expectancy, years after retirement, current earnings, expected annual growth in income, annual income at retirement age, rate of return on retirement corpus, inflation rate and inflation adjusted rate of return/real rate of return should be jotted and taken into consideration.
If all of the above aspects have been looked in to, there is no doubt that the right retirement plan could be organized. However special care is to be taken into account as a comparison of what you would earn or earned as against what you owe. A home based business could provide some sort of stability if not all. Getting a clear picture of what you would get on retirement as against what you would like to have and do after retirement is very essential.
The process of retirement planning aims to assess your readiness to live the second part of life in full as the first part, and to improve actions for the readiness to retire. Retirement planning also touches upon several other aspects of financial, medical and individual, needs of the person. Since planning is about the future, domains need to extend beyond current state description and address uncertainty, volatility and change of dynamics. A well planned retirement would provide total peace, happiness and stable life after retirement. This is mandatory for every individual.
Selasa, 22 Agustus 2017
Various Types of Retirement Plans
Retirement is one of life's biggest worries and thus planning for a suitable retirement scheme plays a very important role in providing a source of income in an individual's retired life. Believe it or not, the retirement life of a person can span up to a third of a lifetime of an individual. Thus planning properly for your retirement is like saving for a 25 year long vacation. Thus, to afford an expense of that magnitude, one has to properly start planning from an early stage of life.
Moreover, planning for one's retirement makes sure that you are not stranded on account of lack of finances at a later stage. For some, the retirement plans are sponsored by their employers whereas for others, like the self employed individuals, planning a suitable retirement plan is very much necessary. There are various kinds of retirement plans which are aimed at different type of individuals. Most of these plans differ according to the economic status of the person.
Types of retirement plans that are mainly sponsored by the employer:
Simple IRA: this retirement plan is mainly meant for employers who are managing a company of less than 100 employees. In this case the employee contribution is not mandatory. However, regardless of the fact that whether the employee contributes or not, the employer has to definitely contribute. The employer has the authority to choose whether to make matching or non-elective contributions. For additional information regarding the same, you can seek the guidance of your financial councilor.
Simplified Employee Pension (SEP): this retirement plan is ideal for small business undertakings where the number of employees is less than 25. The self employed individuals, who wish for a retirement plan which can be administered with very less paperwork and minimal IRS reporting and disclosure can also opt for this plan. For this plan, the vesting schedule is immediate. Any employee who is over the age of 21 and has been with the firm for at least three of the preceding 5 years is eligible to receive contributions. In this case the employee is not expected to contribute and the employer contributions are tax deductible. Thus, the employer can decide on the amount of contributions. The amount is different for every tax year and thus can be verified from the concerned authorities.
401(k) plans: for company 401(k) plans, employee contributions grow tax deferred and thus there are strict penalties for early withdrawals. Usually companies offer only one of the following 401(k) plans: Safe harbor 401(k), Traditional 401(k) or Simple 401(k) plans. Whereas some of the companies also offer a Roth 401(k) plan which allows the participants to make either an after tax or a pre-tax salary deferral contribution. For all the 401(k) plans the employee contribution limits is the same.
The most popular retirement plans which are not based on employment are Individual Retirement Accounts (IRAs) which are of mainly 2 different types: Roth IRA or Traditional IRA.
One should realize the importance of saving money for retirement and make a conscious effort to save for the same so that one can enjoy the golden years of retirement without having to worry about finances.
Moreover, planning for one's retirement makes sure that you are not stranded on account of lack of finances at a later stage. For some, the retirement plans are sponsored by their employers whereas for others, like the self employed individuals, planning a suitable retirement plan is very much necessary. There are various kinds of retirement plans which are aimed at different type of individuals. Most of these plans differ according to the economic status of the person.
Types of retirement plans that are mainly sponsored by the employer:
Simple IRA: this retirement plan is mainly meant for employers who are managing a company of less than 100 employees. In this case the employee contribution is not mandatory. However, regardless of the fact that whether the employee contributes or not, the employer has to definitely contribute. The employer has the authority to choose whether to make matching or non-elective contributions. For additional information regarding the same, you can seek the guidance of your financial councilor.
Simplified Employee Pension (SEP): this retirement plan is ideal for small business undertakings where the number of employees is less than 25. The self employed individuals, who wish for a retirement plan which can be administered with very less paperwork and minimal IRS reporting and disclosure can also opt for this plan. For this plan, the vesting schedule is immediate. Any employee who is over the age of 21 and has been with the firm for at least three of the preceding 5 years is eligible to receive contributions. In this case the employee is not expected to contribute and the employer contributions are tax deductible. Thus, the employer can decide on the amount of contributions. The amount is different for every tax year and thus can be verified from the concerned authorities.
401(k) plans: for company 401(k) plans, employee contributions grow tax deferred and thus there are strict penalties for early withdrawals. Usually companies offer only one of the following 401(k) plans: Safe harbor 401(k), Traditional 401(k) or Simple 401(k) plans. Whereas some of the companies also offer a Roth 401(k) plan which allows the participants to make either an after tax or a pre-tax salary deferral contribution. For all the 401(k) plans the employee contribution limits is the same.
The most popular retirement plans which are not based on employment are Individual Retirement Accounts (IRAs) which are of mainly 2 different types: Roth IRA or Traditional IRA.
One should realize the importance of saving money for retirement and make a conscious effort to save for the same so that one can enjoy the golden years of retirement without having to worry about finances.
Senin, 07 Agustus 2017
Make Informed Retirement Decisions With the Right Retirement Planning Tools
Figuring out how much money you will need to carry you through your retirement years can seem like a complex undertaking. However, using the right retirement planning tools to plan for your retirement will make the task a lot simpler and complete. The right tools will help you see how much money you'll need to put away to meet your projected retirement date, how much your retirement nest egg will be worth at retirement and beyond, and how much net income you will need to sustain the lifestyle you want through your retirement years, so that you can feel confident about the informed decisions you need to make.
The various retirement planning tools will take the guess work out of calculating the money you need for your retirement. Accuracy in planning your retirement needs is important for managing your money today. Not putting enough money aside for your retirement means not having enough money to provide that lifestyle you want during your retirement years; putting to much money aside will cause financial hardship and cause you to stay in the workforce more years than necessary.
Fortunately, there are plenty of internet how-to guides, retirement advice blogs and calculators available at your finger tips that you can use to help you get an accurate assessment of how much money you need for your retirement and can help you decide where to direct your retirement funds in the most profitable direction, so there will meet your retirement goals when its time for you to retire.
Online retirement calculators are some of the most handle retirement planning tools available. Most calculators are usually provided to you for free and without asking for any personal information about you. All you do is input the numbers and the calculators can help you project the cash flow you will need to maintain the lifestyle you want, when you need to start saving, how much you need to save and to save for retirement and how much money you need to retire with the plan of your dreams.
These online calculators will also provide important information about your 401K, IRA and Roth IRA plans, or other retirement savings plans.
There are a series of how-to guides that teach you how to plan a retirement savings plans portfolio to consider inflation and deflation of the market.
Other how-to guides such as how to avoid croaked or incompetent money managers and tips on how to know spot an honest financial planner from a fraudulent one are valuable tools for retirement planning tools that can make sure that your retirement portfolio is well funded when you reach your planned retirement date.
Some planning tools will allow you to do the calculations and save the information in a file so that you can go back to it from time to time and make any necessary adjustments to recalculate your projections. Many investment firms such as Charles Schwab, Fidelity, and Ameritrade provide online retirement planning tools to the general public. You don't have to be a customer of the companies to use their planning tools.
There are many online retirement planning tools that require you to sign up as a member for free. But there are other tools that are only available to customers of the company offering the service.
With the right retirement planning tools you can make the right decisions today that will help you be happier and more financially secure when your retirement comes. It is important to remember to be flexible in your planning and make adjustments as circumstance in your life warrants.
The various retirement planning tools will take the guess work out of calculating the money you need for your retirement. Accuracy in planning your retirement needs is important for managing your money today. Not putting enough money aside for your retirement means not having enough money to provide that lifestyle you want during your retirement years; putting to much money aside will cause financial hardship and cause you to stay in the workforce more years than necessary.
Fortunately, there are plenty of internet how-to guides, retirement advice blogs and calculators available at your finger tips that you can use to help you get an accurate assessment of how much money you need for your retirement and can help you decide where to direct your retirement funds in the most profitable direction, so there will meet your retirement goals when its time for you to retire.
Online retirement calculators are some of the most handle retirement planning tools available. Most calculators are usually provided to you for free and without asking for any personal information about you. All you do is input the numbers and the calculators can help you project the cash flow you will need to maintain the lifestyle you want, when you need to start saving, how much you need to save and to save for retirement and how much money you need to retire with the plan of your dreams.
These online calculators will also provide important information about your 401K, IRA and Roth IRA plans, or other retirement savings plans.
There are a series of how-to guides that teach you how to plan a retirement savings plans portfolio to consider inflation and deflation of the market.
Other how-to guides such as how to avoid croaked or incompetent money managers and tips on how to know spot an honest financial planner from a fraudulent one are valuable tools for retirement planning tools that can make sure that your retirement portfolio is well funded when you reach your planned retirement date.
Some planning tools will allow you to do the calculations and save the information in a file so that you can go back to it from time to time and make any necessary adjustments to recalculate your projections. Many investment firms such as Charles Schwab, Fidelity, and Ameritrade provide online retirement planning tools to the general public. You don't have to be a customer of the companies to use their planning tools.
There are many online retirement planning tools that require you to sign up as a member for free. But there are other tools that are only available to customers of the company offering the service.
With the right retirement planning tools you can make the right decisions today that will help you be happier and more financially secure when your retirement comes. It is important to remember to be flexible in your planning and make adjustments as circumstance in your life warrants.
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