A Research Of The Importance Of Early Retirement Planning
Abstract
Everyone in today’s world is busy working 24x7 but there comes a time when our body may not support the amount of dedication that we need to continue the job and at that time people usually take retirement. This stage is of life requires less manual work but to maintain the standard of living for that people have to continue earning and so at that time retirement planning comes into picture. In simple words we count our current expenses and plan the amount needed in future to maintain the same standard of living. And this paper focuses on the study of importance of early retirement planning.
Introduction
Retirement is nothing but ones withdrawal from their own job. Individuals take retirement with the basic idea to reduce mental stress and physical burden as well. At times officials have to compulsorily remove individuals from job because their body doesn’t support excessive pressure. Corporate s set a particular age group and it differs from corporate, usually corporate s have retirement age set at 58 or 60 years. After that till survival a continuous stream of income is needed by the individual in order to maintain the same standard of living even after the retirement. This stream of income requires a proper planning. And hence retirement planning is needed.
The process of retirement planning itself is a process. Here current expenses of of the individual need to be calculated and understand how much individual might need in order to cover up monthly and yearly expenses and then corpus has to be set and investments have to be made in order to create the corpus. Earlier the retirement planning higher the corpus can be accumulated. Retirement age over years has been 60 over years.
Review of literature
Dittrich, Busch and Micheel (2008) conducted a study on “Working beyond retirement age in Germany: The employee’s perspective”. The focus of this study is to understand whether old individuals are willing to continue working once reached the legal age. The sample survey was conducted by the Infratest in Germany with 1, 500 employees (blue collar workers, white collar workers and civil servants) they were between 55-60 years. The variables of the research had job status, gender, job reward, job demand and various other factors. The conclusion was that they avoid retirement because they want income or family income for survival. Lesser the income higher the demand for working.
Ling and Fernandez (2006) studied about elderly people participating in labour force in Penang. The paper focused on the study was to examine demographic and social-economic profile of the elderly and the factors that influenced the labour force participation of senior citizens i. e. the option to be either “in” or “out”. The sample of the study comprised of 328 respondents of the age falling between 55 and 89 years. The sample selected for this study consisted of 142 respondents who participated in the labour force, whereas the remaining 186 respondents did not form a part of labour force. The sample consisted of individuals of different races in the state of Penag. So the questionnaire was prepared in two languages i. e. English as well as in mandarin, a language spoken pre-dominantly by the Chinese population in Penang.
Brown et al. , (2010) studied one of the most common aspect of life that is retirement and also studied and focused on working post retirement. The main aim was to define what it means to be working in retirement and how employers might best meet the needs of elderly, to the advantage of workers and of the employers themselves. The sample of the study involved 1, 382 participants aged 50 and older. The data collected by the FWI’S nationally representative study of the U. S was used for the study. The major findings of the study revealed that 75 percent of workers who aged 50 years above expected to get post retirement jobs in future. Further it was observed that people worked after retirement for variety of reasons, which included one to avail opportunity to earn more money with which they could have more comfortable life in retirement and because they would be bored if they were not working. Those working 5 Studies from India 20 Studies from Abroad 25 Studies 4 in retirement were highly satisfied. They could keep them engaged in their work. They even rated their workplace more positively than those who were not yet retired. A significant number of such employees showed preference for transition to self employment as retirement jobs. While those worked in retirement worked for a fewer hours, on an average than those who were not yet retired. Majority of elders working in retirement have reported working full time and they wanted to work for the same or even more hours. Finally the study suggested that these working retirees represented a new paradigm for thinking about work throughout an individual’s lifespan in terms of flexible careers. Flexible careers is supposed to recognize that people’s values, needs and aspirations with respect to work change as individuals move through different life stages. It may allow multiple exit and re-entry points.
Discussion and analysis
1. Early age retirement planning
It is believed that age 21-35 is the age where individuals start earning and at this age their expenses are pretty less. In India children live with their parents so when they start earning it is considered ideal to start investing. Because their expenses are more or less handled by their parents and naturally they have excess money. And the ones living along have comparatively less expenses anyways so their cost of living can be covered easily plus they have excess money in this phase of life as there are less financial dependents. And so the adulthood age of between 21-35 is ideal for retirement planning phase.
2. Financial plans
Financial plans are nothing but plans made for financial purposes and in this case for the purpose of retirement. This plan considers a systematic study for retirement, the money needed, corpus amount, regular investment etc. These plans help individual to have a clear sight about the investments and withdrawal of money post retirement. individuals can visit a Certified Financial Planner [CFP] who understands and studies the current expenses predict the future value of these expenses and plan the corpus and as per this corpus they decide the investment that needs to be made and this investment can monthly, quarterly, yearly and semi annually.
A certified financial planner deals with tax planning, investment planning, risk analysis and insurance and retirement planning. A certified financial planner clearly suggests to plan ones retirement in early stage. This because it is very true the our expenses are low and income is high and hence the individual has ample amount of money to be invested in various instruments. One can approach a certified financial planner and plan their retirement.
3. Importance of inflation
One of the major aspects that the financial planner has to consider is inflation. The rate of inflation affects the expenses. As inflation reduces the power of money it is important that the retiree has ample amount of money to maintain the same standard of living. And so the only factor affecting expenses and hence while calculating the future value of expenses inflation os considered.
4. Instruments
A retiree can invest in various instruments depending on his ability to invest and his opinion towards risk. That his whether the investor is aggressive investor or normal investor. It is recommended that the investor must invest in debt instruments as it grows at fixed rate with no risk attached. Also there are mutual funds available which are mixture of both debt and equity or debt or equity as well. Also there is option of provident fund which has a lock in period of 15 yrs and can be extended to 5 year at 3 parts. Also one can invest in NPS scheme tier 1 which is meant for retirement only and hence invested money can be withdrawn at retirement only.
5. At retirement
At retirement the corpus accumulated can be invested can be inevested in various annuity products. Annuity is nothing but when the amount is invested we can get monthly or yearly income along with interest in order to cope up with our monthly expenses. This is inflation adjusted. One can receive this amount at the end or beginning of the month.
This annuity can be purchased till the life expectancy of the retiree. An Individual can also go ahead with reverse mortgage. Reverse mortgage is nothing but when a person takes certain amount in lump sum or installments against their house. That is they can keep their house as mortgage and this can again be a source of income for their retirement.
Also retiree receives various defined benefits, it is nothing but at time of the job the employer of retiree invests certain amount in either EPF or eps schemes. And this amount once accumulated at retirement is given to employee at time of retirement various other retirement the employer also provides gratuity. This also has to be considered at time of calculation of corpus to be accumulated and its investment.
Results
Following are the observations from the study:
- Early retirement planning helps in increasing the retirement planning
- Investing in annuity provides a regular income
- Mutual funds, equity, debt market and various other instruments are available for retirement planning
Conclustion and recommendation
From this research on “Importance of early retirement planning” it has been concluded that retirement planning is very important as it focuses on saving a part of their present income and using it as their income after retirement. It has been concluded from this research that sooner retirement is planned better it is. Because when we are in our initial stage of earning say 26 our retirement age of retirement is 60 which gives ample amount to individual to build corpus. Whereas if individual starts retirement planning by age of 40 the corpus generated will be pretty low.
Hence, it is recommended that individuals must start planning their retirement at an early stage so that they can enjoy the same standard of living even post retirement. It is recommended the if the investor wants to avoid risk they can start investing in debt market, government bond, provident fund, NPS Tier 1, FD’s, and various other instruments. Whereas if investor happens to be an aggressive investor they can invest in equity market and build copus. Once corpus is built they can either withdraw entire amount or it is recommended to invest entire corpus in an annuity product to get regular income.
References
- Retirement https://en. wikipedia. org/wiki/Retirement
- India Retirement Age – Men https://tradingeconomics. com/india/retirement-age-men
- Dittrich, Busch and Micheel (2008)--http://shodhganga. inflibnet. ac. in/bitstream/10603/129361/8/chapter%202. %20review%20of%2 related%20literature. pdf
- Ling and Fernandez (2006) http://shodhganga. inflibnet. ac. in/bitstream/10603/129361/8/chapter%202. %20review%20of%20related%20literature. pdf
- Brown et al. , (2010) http://shodhganga. inflibnet. ac. in/bitstream/10603/129361/8/chapter%202. %20review%20of%20related%20literature. pdf
- Retirement planning https://www. investopedia. com/terms/r/retirement-planning. asp