RETIREMENT PLANNING

“What is Retirement”

�“Retirement Planning Can create a difference in your last inning of the Life”�

INDIA

In India More than 50% People who are aged more than 60 years of age are compelled to work for their livelihood

“Will I have enough money to last through my retirement years?� -Client question

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• About maintaining lifestyles
• Addressing medical issues
• Taking care of parents
• Dependent children
• Estate for the generations

BUT YOU STILL NEED TO EXPLORE THIS

Steps for Retirement Planning

• Establish and define the relationship with the client(s)
• Gather pertinent data
• Analyse the data to determine the client’s current status
• Develop and present recommendations
• Implement solutions (or provide guidance for implementation)
• Monitor progress (depending on the nature of the engagement

�Goals and Needs�

• Identify all outflows

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• Determine which categories will not likely continue into retirement
• Example:
• Loans
• Education of Children
• Transportation for Job
• Explore other potential areas where expenses may cease, or at least be reduced

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• Determine which categories may likely to appear into retirement
• Grand children education
• Medical Expenses

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Are Client Goals are Realistic ??�

• Primary step is to identify his or her current, and anticipated, financial situation
• Current cash flow management
• determine what funds are available to use in reaching future accumulation needs.
• Current Liabilities

Inflation…

�Healthcare Issues�

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• Health care has seen the highest inflation in recent times
• Its always advisable to plan for health or medical expenses in retirement planning

High Net Worth Clients-Why should I plan my retirement�

Strategy for High net worth Individuals

• Do an analysis to determine the degree to which available assets can support their desired lifestyle in retirement

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• Need to develop a plan to care for dependents – including elderly parents and children.

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• Consider philanthropic/charitable activities

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• Discuss reallocating investments so money is available when it is needed

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Establishing Retirement Cash Flow Targets�

Employee Benefit Research Institute (EBRI) in the U.S Institute (EBRI)

65 percent of people surveyed expected their spending to be lower in retirement

Later found that 55 percent of actual retirees find their financial situation to be worse than anticipated

HEALTHCARE

Financial Emergency

Home Repair

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Dependent Children

Balance�

Three Distinct Phases of Retirement

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• Active: Typified by increased leisure-time activities, such as travel;
• Passive: Usually accompanied by a “settling down” with less travel and a greater awareness of end-of-life issues; and
• Final: Often a time of decreased wellness, resulting in increased medical expenses.

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�Competing Client Goals�

Competing Priorities- Lifestyle objectives

• Many young adults have children and need to support them as they grow up
• single individuals may focus on meeting near-term life goals;
• parents plan for children to enter university and begin their own life journeys
• Setting up a new home often requires purchasing appliances and making significant expenditures
• There may be expenses for travel, holidays, cars, clothes, entertainment, all sorts of things

• Accumulation phase (to about age 30)
• First job/career
• Paying off debt
• Begin saving & investing
• Marriage and children (for some)

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• Consolidation phase (generally age 30 to 60)
• Home purchase
• Marriage (for some)
• Children Education
• Peak earning years
• More investable income

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Retirement Planning During Life’s Stages

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• Retirement phase (generally age 60+)
• Cash flow typically ends or is significantly reduced
• Portfolios typically reallocated to a more conservative approach
• Portfolio distributions
• Wealth transfer
• Long-term care issues

Retirement Planning During Life’s Stages

ACCUMULATION & DISTRIBUTIO NPERIOD

• RETIREMENT AGE- CURRENT AGE
• DISTRIBUTION PERIOD
• Considers the spouse survival also
• Retirement Age : 60
• Current Age
• Husband 30 Wife 28
• Life Expectancy
• Husband 75 Wife 80

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DIST PERIOD WILL BE 22 YEARS

�PRACTICAL QUESTION

• Your client Helen wants to retire 25 years from now with the inflation-adjusted equivalent of $45,000 (Current) additional annual income. Payments at the beginning of each year. As you and Helen discuss her retirement, you agree to plan for 30 years of inflation-adjusted income in retirement. Annual inflation is stable at 2.9 percent, and Helen’s portfolio is earning six percent annualized. Helen wants the entire amount in place at the beginning of her retirement.  How much will Helen have to save at the end of this and every year for the next 25 years to meet her goal?

Capital Required for Retirement�

• Your client has seven years in retirement. In today’s terms, the client believes she will need an additional $65,000 lump sum in today's dollars in addition to her guaranteed pensions to have sufficient funds to finance her retirement.

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• You and your client assume inflation will average 3.5 percent over the long run and that the client can earn a 10 percent annual return on investments. What inflation-adjusted payments are required to be made at the beginning of year starting immediately in order for the client to achieve her goal?