Retirement solutions for Financial Planning MCOM sem 1 Delhi University
You have successfully passed through the many phases of life, overcome many hurdles in your long career, seen the ups and downs, and so on. Now it’s the time to enter a new phase—Retirement. It means retiring from work, not life. Like changing from the fast lane to the slower lane where the drive is far more relaxed, scenic and pleasurable. It’s just another phase in one’s life. Retirement is a state of mind as well as a financial issue. For most people, the regular income comes in the form of a salary, which is paid monthly. Because of the regularity of income during our working life, we usually adapt our spending to fit in with our income patterns. By the time retirement comes around we usually have our income and spending patterns well practised, although these may change a little in retirement.Retirement solutions for Financial Planning MCOM sem 1 Delhi University.Retirement solutions for Financial Planning MCOM sem 1 Delhi University
During retirement, or at some stage before, we also need to plan what we are going to do with our retirement savings. Usually this will involve looking at what to do with our superannuation money and any other savings that we may have accumulated along the way. In view of the above facts, it falls on the concerned person to do financial planning in a way he/she not only maintains the lifestyle but also has financial independence as well.
There are many factors related to retirement planning, and it is never too early to begin. You may define your retirement goals and need to start a retirement savings plan before considering actual retirement. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
Follow the following four simple steps to arrive at an ideal retirement plan.
Step 1: Decide how much income you require to live comfortably in your post-retirement years. Remember to take into account aspects like increased medical costs, expenses and gifts for family.
Step 2: Calculate the amount to be received in lump sum (terminal benefits) at the time of retirement.
Step 3: Select the right retirement plan that enables you to meet your post-retirement
requirements. Preferably, choose to invest in asset classes , which can provide you with potentially higher returns in the long run.
Step 4: Start investing very early so that you have time on your side and can enjoy the power of compounding. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
Retirement solutions for Financial Planning MCOM sem 1 Delhi University
How much retirement income will I need?
An easy rule of thumb is that you’ll need to replace 70 to 90 percent of your pre-retirement income. If you’re making Rs20,000 a month (before taxes), you might need Rs15,000 to Rs18000 a month in retirement income to enjoy the same standard of living you had before retirement.The following example illustrates the amount needed as retirement corpus to ensure a steady flow of monthly income. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
Calculation of retirement corpus:
Retirement- Age 60
Current- Age 58
Life expectancy- 83
Years after retirement- 23
Current Annual Expenses- Rs 1.80 lakh
Average Return on investment- 12%
Inflation adjusted return- 7%
Total retirement corpus required- Rs 15 lakhs
Action Points: How to Prepare for Retirement?
1. It’s never too late to start. It’s only too late if you don’t start at all.
2. Deposit everything you can into your retirement plans and personal savings.
3. Reduce expenses and funnel the savings into your kitty.
4. Aim for higher returns and tax savings. Don’t invest in anything you are not comfortable with.
5. Refine your goals. You may have to live a less expensive lifestyle in retirement.
6. Sell assets that are not producing income or growth and invest in income-producing assets.
# While a corpus of Rs 15 lakh may be adequate at the beginning of your retirement, it would not be enough in later part of your retired life due to inflation making your expenses more for the same goods and services. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
“The best time to plant a tree was yesterday. The second best time to plant a tree is today.”
Financial planning is the process of meeting your life goals through the proper management of your finances. Financial planning helps you make advance provision for financial needs that will arise in the future. The objective of financial planning is to ensure that the right amount of money is available at the right point in time in the future to achieve an individual’s life goals.
Financial and investment planning are terms that are interchangeably used in personal finance parlance. To understand the difference between the two concepts, we first have to understand them well. Investment Planning (IP) has the “rate of interest” factor at its core. The Investment Planning process involves several steps, ranging from setting investment goals and understanding the risk appetite to designing an investment portfolio after evaluating the markets and the investment landscape. Investment Planning refers to a commitment of funds to one or more assets that will be held over a specific period. Anything not consumed today and saved for future use can be considered an investment. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
The five steps of the financial planning process are:
• Gathering your financial data such as details on your income, debt level, commitments, etc.
• Identifying your goals
• Identifying any financial issues or gaps between where you are now financially and where you want to be
• Preparing your financial plan, which will identify recommended investments and will
address your attitude to risk
• Implementing financial plan—review and revise your plan—to ensure it stays up-to-date and relevant to the economy and changing lifestyle.
A financial plan helps drive your financial decisions to a defined goal. It helps you determine how much to save today for the future you planned for, how much returns to expect on your savings and where to invest your savings to ensure you get the returns you desire.
Thus, planning your finances is a type of management that involves setting a mission and having a vision for your future. This is very crucial in the planning process as it allows you to design a path as to how you plan on achieving the objectives within a stipulated time frame. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
A critical first step in managing your finances is to be able to set up SMART financial objectives. Your goals have to be S (specific), M (measurable, motivated), A (Achievable), R (realistic, resourcebased), and T (time-bound, trackable). Many people make the mistake of stating general goals, which, more often than not, will not materialize.
SAVINGS AND INVESTMENT
Saving and investing are two related, but independent, processes. Saving is the process of putting hard cash aside and parking it in extremely safe and liquid accounts such as Bank savings accounts. Investing is the process of using money (called capital) to buy an asset that you think will generate a safe and acceptable return over time, making you wealthier with each passing year. When you save, you’re preserving your money for a later time. When you invest, you’re taking some risk that you believe will make it possible for your investment to grow in value over time. While investing can help you achieve your long-term goals, saving is an effective way of managing your money to meet short-term needs and to provide a safety net for emergency expenses. When saving money, the primary emphasis is on the stability of the principal rather than return potential. On the other hand, investors are generally more willing to risk their principal investment for the potential of higher returns. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
LOANS vs. INVESTMENT
There is a general confusion among people whether they should avail a loan or build
investments to achieve their financial goal (for example, daughter’s marriage). There is no rule which says that either of the option is good, because it differs for each person’s capacity and the nature of debt or investment. The following points are worth remembering:
• It purely depends on your financial strength and other factors.
• Credit card debts and personal loans are very costly.
• If you have a loan with a low interest rate and tax benefits as in the case of home loans, it is advantageous to go for a loan. If you have an investment plan where you can make good return, then you may opt for investment. Retirement solutions for Financial Planning MCOM sem 1 Delhi University.
• You have to be sure that the investment is not risky and will not affect your family if you lose the money. For example, you are investing huge sums in share market, instead of closing the existing debts, that is very risky.
RISK vs. RETURN
Every individual has his/her own risk taking capacity. Your risk-return profile is your level of risk tolerance. A high risk venture is normally associated with high returns. You could be one of the following three risk-return profiles or somewhere in between them:
1. Conservative, i.e., you take minimal risks ensuring your funds are secure. You prefer investing in post office deposit schemes, bank fixed deposits, and government bonds.
2. Moderate, i.e., you are willing to take some risks and prefer investing in mutual fund schemes.
3. Aggressive, i.e., you are willing to take high risks and prefer investing in equity, commodities markets, and you may even be speculating for returns.
Higher the risk, the higher the return! This is an important investment principle. Managing the level of risk is what investing is all about. There is no investment without some risk, including putting money in the bank. Always check the potential risks when quoted returns are unusually high. It is advisable to understand risks associated with each financial product before investing.
Study Material that you should use to prepare M.COM
To successfully prepare for M.COM you should use a combination of best faculty video lectures, best recommended scanners and books, and a lot of free notes, charts, pdf files available for free download from www.cakart.in.