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Chapter 7: Retirement Planning - Coggle Diagram
Chapter 7:
Retirement Planning
IMPORTANCE OF RETIREMENT PLANNING
Set goal
(what age to retire and how much money need)
Pitfalls in retirement planning
(starting too late, putting away too little, investing too conservatively)
Misconceptions about
retirement planning
expenses will decrease when I retire
retirement will only last 15 years
Social Security & my pension will pay for my living expenses
pension benefits will increase to keep pace with inflation
Medicare and employers' health insurance plan will cover medical expenses
there's plenty of time for me to start saving for retirement
saving just a little bit won't help
Importance of starting early
(to take advantage of the time value of money)
The power of compounding
small investments become larger given enough time
money put into savings account earns interest
people spend more years (16 to 30) in retirement as life expectancy in increasing
A private pension (EPF) and Social Security are often insuffiecint to cover the cost of living
inflation may diminsh the purchasing power of your retirement savings
The Basics of
Retirement Planning
Analyze current assets and liabilities
Estimate spending needs
Evaluate planned retirement income
Never too late to start
Increase income by working part-time
Put away 20% of your income
Reduce expenses
work extra hours
investments are not part of the problem
retire later
make use of your home
sell assets that are not producing much income
FUTURE RETIREMENT NEEDS
Housing
if owned, probably the biggest assets
if large equity, a reversee equity mortgage could provide additiional retirement income
loan that is secured against the value of your home
allow you to cash in some of your home's equity, without having to sell or move out (not in Malaysia)
could sell you o=home, buy a less expensive
Life Insurance
can be converted into an annuity
Other Investment
review investments and consider taking the income from them
RETIREMENT SPENDING NEEDS
Spending Patterns
Expenses
Go down
work expenses (gas, fuel, lunches out
clothing expenses (fewer and more casual)
housing expenses (house payment, but taxes and insurance may go up)
federal income taxes will probably be lower or nil
Go up
life and health insurance
medical expenses increase with age
leisure activities (vacation, haji, umraj)
gift and contributions (wedding)
Inflation
expenses increase over the course of probably 16-25 years in retirement
RETIREMENT HOUSING NEEDS
Type of Housing
A universal deisgned home is built to allow for potential physical limitations
Not universal design, may need to be retrofitted
Continuing care retirement community provide increasing levels of care
Retirement Housing Traps
learn about taxes and economic profile
check on sales taxes on pension income
find out what taxes are rising (RPGT if sells 1st house)
estimate utility, health care, auto insurance, food and clothing costs
rent for a while instead of buying immediately
PLANNED RETIREMENT INCOME
Pension
Private Sector
Type
Employee Provident Fund (EPF)
[11% employee, 12% or 13% employer]
Structure & Distribution Rate
Previous Acoount
Account 1 (70%)
Account 2 (30%)
New Account
Akaun Persaraan (75%)
1 more item...
Akaun Sejahtera (15%)
2 more items...
Akaun Fleksibel (10%)
3 more items...
SOCSO
[0.5% employee , 1.75% employer]
PRS (Private Retirement Scheme)
[public mutual, unit trust, tax relief RM3,000]
Government Sector
JPA (Jabatan Perkhidmatan Awam)
Pension Scheme
gratuity (lump sum)
7.5% x number on months of reckonable service x last drawn salary
GCR - cash award in lieu of leave (lump sum)
1/30 x [basic salary + fixed allowances] x no. of leave accumalated up to 180 days)
monthly pension
max: 3/5 of last drawn salary
(after service 30 years / 360 months)
= 1/600 x number of onths of recknoable service x last drawn salary
Savings & Investment
savings account
fixed deposits
stocks and bonds
unit trust
real estates
gold
income from online businesses
income from other businesses
BALANCED BUDGET BASED ON RETIREMENT INCOME
Retirement Income
make sure receive all retirement income to which you are entitled
develop a spending plan for retirement
if you have the skills and ability, start some small business
Tax Advantages
take advantages of tax savings retiress
(Malaysia-tax exempt pension)
retirees get a variety of tax savings
Investing for Retirement
monitor your investments
invest some of your retirement income for growth
allow for inflation and increased health care costs
Dipping into Nest Egg
dip into savings with caution (don't know how long to live)
be financially independent
Tips to manage retirement planning
select a target date
estimate money you need to accumalate
find out your Social Security benefits
talk with banker or tax advisor
don't touch your savings
diversify your assets
seek the professional financial advisor
set clear short term and long term goals
investing money shouldn't stop when retirement begins
calculate the estimated