Retirement Planning Challanges

Longevity Risk:

A successful planner makes sure that post retirement his client is left with adequate money to live rest of the life peacefully and income stream should be set in such a manner so that the money doesn’t get over till the life time. When you have planned for retirement, dying during the time of retirement is less risky than surviving longer. And this really magnifies our vision to understand how important longevity is for retirement planning. So when such plans are made the kitty should be higher than the required for the expected life. By this way planner can ensure that money doesn’t get over before the life of the client.

Inflation risk:

There is one more enemy of the retirement plans known as inflation. It normally arises when too much money chases few goods. It increases the future cost of the goods and reduces the purchasing power. While planning for retirement inflation estimates plays the vital role because wrong estimation of inflation leads to inferior life to the retired person. Challenge here for the planner is to develop a long-term vision on the inflation and constant revision of the plan based on the prevailing inflation.

Several other factors to be considered while choosing the inflation are:

Spending habits: Retiree buys more services and services cost more than goods

Medical inflation: Medical inflation is generally twice than national average

Regional variation: Plan to move to lower cost areas cause inflation is regional

 

Healthcare expenses are the biggest expense normally incurred by the retired people. The longer the life expectancy, the higher are the expenses. Hence one more challenge to the planner is to first of all classify routine and contingent healthcare expenses and providing for the both. So that such contingencies do not affect the overall living standard of the retired person.

 

Wealth Creation

Wealth can be defined differently by different people.

According to me wealth involves the building of assets by means of careful investment into asset based investments, usually over a long period of time so as to achieve an income stream that will ensure a continuation of a high quality lifestyle in the years beyond retirement.

To create wealth you must follow the follow following principles:

1. You should start investing earliest and should not delay any investment decision and implementation 
2. Remember that investment does not require timing but it requires time to grow
3. You can compare investments with seed, if you change the soil every other day your seed will remain seed only, they will never become trees
4. Finally reap the benefit of compounding
5. Increased years of risk taking boosts up the kitty
6. Invest regularly in committed way
7. Work on asset allocation and should be altered as and when required
8. Work on risk appetite and your risk appetite should decline with increase in age

 There are saveral rules which are also required to be followed:

1. Pay your self and invest the payment means invest some money every month for yourself
2. Clear the credit card bills
3. All debt is a bad debt (read further on: https://prashantvshah.wordpress.com/2010/08/26/what-is-the-difference-between-good-debt-and-bad-debt/)
4. Keep check on your loans and if possible wipe off costly loan 
5. Believe in writing budget and try to adhere
6. Set the SMART goals
7. Allow your money work for you