FACTORS THAT WILL IMPACT RETIREMENT PLANNING
There are several reasons why each person requires a unique retirement plan so that their specific needs are taken care of.
The lifestyle maintained by a person has a significant impact on the monetary requirements during retirement planning. Post-retirement, one would like to maintain a lifestyle that is relative to his present one. This will be a determining factor in the kind of funds that will be required at the time of retirement.
A person who leads a simple lifestyle where he does not go overboard in spending will have a lower requirement during retirement. On the other hand, a person who wears only designer clothes or branded clothes and eats out only at the most expensive restaurants and shops only at the high-end malls will have a completely different requirement of funds. This kind of difference will make a huge impact at the time of retirement.
This might seem to be a very surprising point in the retirement planning process but it has its own significance. People hold certain personal values and beliefs close to their hearts. Some of them would like to lead a life in a certain manner and are content with things in the way they are. There is also little wastage for them and the important thing is that while they enjoy the good things in life, they prefer to do without showmanship. For such people, the planning has to be in tune with their beliefs. The savings they accumulate during their lifetime is also enough to be well off. On the other hand, for someone who doesn’t save or maintain control over expenses, there is a higher chance of trouble in later years.
NATURE OF INCOME
The amount one is able to save is directly related to the nature of income that a person generates. This is a major factor that either helps or constrains the entire process for the individual.
For example, consider a person who is salaried. The earnings are fixed each month. There is not going to be any major change for a few months at least unless you change jobs or a huge bonus comes your way. Long-term goals can only be achieved through disciplined efforts. The retirement plan will have to factor in these conditions. On the other hand, for someone who has income from business and profession, there is a possibility of changing the way the planning is done based on changes that one will witness in terms of business activities. There can be a positive as well as a negative impact on this development and hence one has to be careful in using this factor for analyzing the retirement planning process.
TIME PERIOD TILL RETIREMENT
This is a very significant factor in the retirement planning process because it will determine how much of the goals of a person can be achieved. Even while retirement planning might seem to be an activity for old age it is important to know that the earlier that one starts the process the better it is because it gives them more time to achieve their overall objective.
If one starts off at young age, then there is adequate time to achieve various goals and the power of compounding will also help. On the other hand, a late start or even some last-minute efforts might make it very difficult to achieve overall goals that might be present before the individual.
This time period till retirement is useful because it can also help plan out the entire retirement process. A person will be able to know at a glance the kind of efforts that they have to put in order to achieve the goals that have been set out before them. The retirement plan will also change at different points of time depending on the time left till retirement.
The prevailing and future rate of inflation will impact retirement planning. For an individual, it is the net gains from the planning process that is important. The net figure is the one that is arrived at after providing for inflation and this is the real earning for the person. If there is a high inflation figure then it means that a person needs to earn far higher to be able to beat inflation and still keep his head above water. On the other hand, lower inflation will result in a boost to the net earnings.
Inflation is not going to be constant and hence it can also spurt up at any point in time. Such movements can change the complexion of planning and impact the final result. Hence, it is necessary that one considers the effect of inflation over a longer time frame to ensure a better estimation. This will also help one to know how they should invest the funds so as to be able to beat inflation on a consistent basis and earn some real return that will actually add to the capital.
EXISTING SAVINGS AND CAPITAL
The amount of savings and capital that has already been built up by an individual will also play a very important role in the retirement planning process. The personal net worth of a person includes all the amounts that have been accumulated through the life span and hence any activity or savings that have already been completed or are already in process are very useful to an individual is adding up further building blocks into the future.
Other savings, which are already being made can also be used in an effective manner and then channelized towards areas that will help the person to ensure that they remain on the path of savings and committed to the overall goals. This is far better than making a new start though there will be problems at all stages. Past experience and encouragement are a very good sign for an individual as it is very helpful during the entire process.
There are various kinds of people in the world. Some of them are risk-takers; they are not affected by the swings in the markets. This means that they can invest in such areas without getting worried each day about the extent of capital loss and the kind of impact that they will face when it comes to their investments. Such people are able to take long calls over a period of time by investing in equities and other risky assets. For such people, long-term retirement planning is a very profitable way.
On the other hand, there are also people who are risk-averse and would tend to move towards investments that do not result in a loss to their capital, and such types of people will always look for debt instruments where the risk is very low. Achieving the goals set out in the retirement planning process for these kinds of people is a different task. Therefore, the retirement plan must take into account the risk appetite of the individual.
PRESENCE OF A FINANCIAL PLANNER
There is also the question of help and the advice that a person is receiving because it shapes the way in which the financial plan is being created. It always helps to have a financial planner around because it adds an element of professionalism to the activity. On the other hand, if there is little or no such help then it is left to the individual to ensure that an appropriate financial plan is drawn up and implemented in a professional manner. There is a varying level of comfort that will come with different aspects of the financial planning process and one has to be careful in the way in which the entire activity is conducted, as it will affect the smooth flow of events.
Additional activities that a person indulges in like hobbies or other extra work will require mixing in the planning process. Retirement planning is also about the way in which one handles retirement. If there is an element of happiness for a person in other areas this will affect the retirement planning process. Such activities will impact the individual in a positive manner and this may warrant some sort of a change in the process leading to better results for the individual.
SERIOUSNESS OF PLANNING
In the end, there is one factor that is the most important component as far as the overall plan is concerned. This is the seriousness with which the planning is done. There cannot be any half measures as far as retirement planning is concerned because it is a long-term process that requires a long-term commitment. This is not easy to achieve if one has not been able to grasp and understand the nature of retirement planning and the reason why it is necessary. A certain level of conviction is required for the smooth execution of the plan. There will be a number of occasions when the going gets tough. Unless one has the conviction about the need for a plan, one may end up dropping the plan after having made so much effort in this direction.