Retirement Planning Some basics

Retirement

In the Initial earning years it may be difficult to find adequate savings and there may be immediate and closer financial goals that may take precedence over the retirement goal. The savings plan for retirement should consider the overall financial situation and goals of the individual. It may be necessary to start low and increase the savings as the income grows and the ability to save increases.

Investments made in the accumulation stage should be growth oriented, since there is along investment horizon adequate to smoothen out the short term volatility in returns that such investments display. There is generally a greater ability to take risk, and the portfolio should be invested to earn higher returns.

The distribution stage of retirement is when the corpus created in the accumulation stage is employed to generate the income required to meet expenses in retirement.Investment made at this stage is income -oriented primarily. The ability to take risks is lower since any erosion in the capital created cannot be replaced.

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Retirement planning involves the following steps:

Compute the retirement corpus required based on the estimation of expenses in retirement or income at retirement.
Determine the periodic savings required to accumulate the retirement corpus.
Analyse the current financial situation to determine the savings possible.
Set in place a long term savings plan based on the expected income.
Identify the investment products in which the savings will be invested.
Monitor the performance of the investment and the growth of the retirement corpus periodically.
Review the adequacy of the retirement corpus whenever there is a change in personal situation that has an impact on income or expenses.
Make mid-course corrections, if required.
Re balance the portfolio to reflect the current stage in the retirement plan.

A good retirement plan provides an adequate corpus for the sunset years without compromising on the standard of living of the person. It also involves smart selection of retirement products to not only save for retirement but also help save on taxes.

Source: NISM Courseware

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