Personal financial planning - planning for retirement

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Advances in medical science have resulted in people living longer. This increase in life expectancy makes retirement planning even more crucial.Furthermore, with better affluence, there is also an increase in demand for a better lifestyle during retirement.

The objective of retirement planning varied depending on circumstances, and normally includes:

-Maintaining a self sufficient pre-retirement standard of living
-Coping with increasing health care cost
-Protection of property and against personal liability
-Providing for dependents
-Estate planning

The process for retirement planning:

Step 1: Overcome Obstacles
Step 2: Determine Goals
Step 3: Measurement
Step 4: Reference Point
Step 5: Overall Plan

Overcoming The Road Blocks

There is only a limited period of accumulation and a continuous period of consumption.The first step is to overcome the many obstacles hindering retirement planning.These include spending beyond means, unprepared for unexpected expenses (like repairs), inadequate insurance (like property loss, medical bills), tapping into retirement funds for other purposes (like upgrading house, holidays), etc.

(1) Aim to save at least 10% of income and gradually increase it to 20% when it is nearer to retirement.This accumulates towards retirement funds and helps to accustom to a retirement lifestyle within the financial means.

(2) Establish an emergency fund of at least 6 months of income that is separate from the retirement plan fund.The will be used for risk retention, covering for unexpected expenses without drawing on the retirement funds.

(3) Have sufficient insurance.A major crisis will be a huge drain on all of the savings, it is best to transfer this risk by being adequately covered.

(4) Saving for other specific purposes should be saved for separately.It will derail the retirement plans due to the shortfall.

Determine Retirement Goals

Depending on the circumstances, the goals will vary from individual to individual.Some common areas to consider:

(1) Lifestyle.
-Housing: Sami house, mortgage ˜getting, upgrade, downgrade, migrate.
-Leisure: Pursuit of hobbies like golf, yoga, charity or religious activities.
-Travel: Overseas holidays, car ownership.

(2) The age of retirement.
-The last day to have to work or the last day to want to work.
-Early retirement due to from corporate, health, care giving concerns, etc.

(3) Health.
-Coping with increasing health care cost.
-Health screening.
-Dental care.

(4) Estate planning.
-Passing on the wealth eventually.

(5) Caring for dependents.
-Physical gold medical care for elderly parents.
-Providing for children not yet independent gold siblings requiring aid.

Measuring The Finance Required

From the above goals, the required amount needs to be quantified.

(1) Lifestyle and dependent expenses.An estimate is about 60% of pre-retirement income.
(2) Project the retirement age.The statutory retirement age is 62 years old.
(3) Health expenses.Total up the amount of insurance premiums and health screening cost.

In addition, some assumptions need to be made:

(1) Inflation rate.The average historical inflation rate in Singapore is about 1.5%.
(2) Investment returns.Depending on the choice of investment, this varied significantly.
(3) Life expectancy.A reference will be the natural death ages of great-grandparents, grandparents or parents. The average age is 78 for males and 82 for females, and this average is increasing.

Reference Point

The current position needs to be analyzed so as to determine the strategies to achieve the goals.

(1) Current age.Number of years to accumulate funds before retirement.
(2) Current health.Deteriorating health will be more of an immediate concern.
(3) Financial position.Amount of savings, assets, liabilities, income, current expenses.
(4) Existing plans.CPF, SRS, insurance and investments already in place.

Overall Plan

Depending on which stage on the retirement plan, the approach to arrête will be different.

(1) Accumulation Period
The period when one starts to save for retirement until about 10 years prior to retirement.The focus will be on the shortfall of funds required for retirement form the current reference point.The strategy will be hand on saving to invest.Investment will be covered in a later topic.

(2) Transition Period
The period about 10 years just prior to retirement.As retirement draws nearer, the goals become clearer.It is important to review if the desired lifestyle can be achieved with the funds or if more savings is required.The earlier will also need to be repositioned into less risky investments gradually accumulated funds.

(3) Retirement Period
This continuous throughout since retirement.The funds will be used to generate current income.Some considerations during this period:
-Purchase of tenements (CPF Life)
To provide a guaranteed income for life.Recommended to purchase to cover for the minimum monthly living expenses required.
-Maximize use of property
Reverse mortgage, downgrading, renting out spare rooms can be considered for additional income.
-Work
To perhaps work on a part time basis, as a consultant or run a business.

As with all plans, it will need to be continuously reviewed when personal circumstances change (like a newborn or divorce), external market conditions affecting investments, or introduction of new policies (like Exchange of statutory retirement age or CPF rules).

Use of the Present Value and Future Value calculations covered earlier will need to be used to give a better estimate of the amount needed.A simple example:

John Doe in good health, age 40, intends to withdraw at age 60, current income is $ 60,000 annually.

Package: Projected expenses at retirement is 60% of pre-retirement income, income will increase 3% annually, is 2% inflation, investment returns is 7%, life span will be till age 80, will carry on to stay at current residence.CPF contributions mainly used for housing and repayment of loan and has not started any retirement plans.

PV = 60,000, 1/Y = 3%, N = 60 / 40 = 20; FV = 108,367.
Therefore, pre-retirement income needed per year = 60% of FV = $ 65,020

PMT = 65,020, 1/Y = 7%-2% = 5%, N = 80-60 = 20; PV = $ 810,293
Total retirement fund needed at point of retirement = $ 810,293

FV = 810,293, 1/Y = 7%, N = 60 / 40 = 20; PMT = 19,765
Amount needed to save per year is $ 19,765 Gold $ 1,647 per month.

Aaron Lau is an independent financial adviser in Singapore.He shares his awareness of good personal financial planning in areas of:
1. Financial Goals
2 Risk Management
3 Insurance
4 Retirement Planning
5 Tax Planning
6 Estate Planning
7 Investment
8 Reviewing
Visit http://anifaview.blogspot.com/2010/02/personal-financial-planning.html

He also shares insights into how to improve your physical and financial health and wealth.
Visit http://anifaview.blogspot.com/ to find out more and receive my free ebook "A Practical Guide To Financial Success" at no. loads.

Financial planning lessons

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My financial planning knowledge comes from 30 years of budgeting, tax planning and investment experience starting out poor and working my way up to my current financial status. I could not have accomplished what I accomplished without the financial planning lessons that I learned through experience.

I have worked in business for over 30 years and have been active in the investment arena for over 28 years. I mainly want to tell my story of how I executed my financial plan with hopes that you can gain some insight into what it takes to build a successful financial plan.

Retirement Planning is a Critical Piece of Your Financial Plan

One of the things we are all taught is to work and put away for retirement and in this financial planning lesson I have to tell you I truly believe that is a worthy and necessary goal because none of us wants to work for the rest of our life.

Your 401K May be Your Largest Income Producer in Retirement

If you are in the workforce and your company has a 401K plan your first step is to get involved with that plan and contribute as much as you can afford to contribute. This will have a tremendous impact on your finances. Most plans have a matching component up to a certain percentage and I urge you to contribute up to that percentage if at all possible. Otherwise you are missing out on free money. There are many plans that contribute 50% on the dollar up to 6% of your annual salary. Imagine you put in $500.00 the company puts in $250.00 plus you earn interest on the money, it's hard to find that kind of return on your money anywhere else.

The 401k is a form of investing for your retirement. Usually companies set up the 401K plan and allow employees to contribute up to 15% of their salary. You can choose to have the money taken from your check before taxes or after taxes. Investing the money before taxes helps you because you get the full benefit of your money before the IRS taxes you. The company will usually match what you put in up to 6% at .50 on the dollar.

You put in $500 the company will give you $250. That's an amazing return on your money, better than most investments and better than most pension plans. Investing your money this way is great because money that you would normally be paying to the IRS is sitting in your account earning interest.

I know it can be tough when you are first starting out but if you just invest 3% to start it's better than investing nothing and as you get pay increases you can put a part of the increase into the 401K plan until you reach 15%.

If you are earning $500 a week and are in the 28% tax bracket and you don't invest in the plan you will pay $140.00 in taxes. However, if you invest 3% ($15.00) of that $500.00 in a 401K plan you would only pay $135.80. Therefore, your 3% investment is only costing you $10.80 but you are investing $15.00. In effect the IRS is paying $4.20 on your behalf and on top of that the company is going to give you $7.50. Ok so you invested in effect $10.80 and now you have $23.00 that's 108% return on your money. I don't know about you but I don't know a lot of places where you can get this kind of a return on your money. If you do this right and leave the money in the plan and let it grow you shouldn't have to pay back the tax money because when you retire you should be in a lower tax bracket. Also you will earn interest on all your money.

In effect you are only spending 2.04% to invest in yourself. The truth is you can't afford not to invest in your future. The beauty of the plan is your money earns interest tax free causing it to grow faster than most other investments. You would have to pay capital gains tax each year on most other investments thus reducing your overall return.

The return that you get in this type of investment is phenomenal because of the compounding of the interest and the fact that you don't have to pay capital gains tax on it until you retire. The rule of thumb you can use to figure out when your money will double is called the rule of 72. To figure out when your money will double you start with 72 and divide it by the interest rate that you are earning. For example if you invest $5000 and you are earning 10% interest the formula would be; 72/10=7.2 years. In 7.2 years you would have $10,000.

You need to understand that this is truly a retirement plan and as such your money is tied up until retirement with the exception of a few special circumstances such as to pay for education, your primary home, or a hardship such as a serious illness (check with your tax preparer).

If you withdraw money before you are 59 1/2 you will have to pay a 10% penalty as well as normal taxes on the withdrawal. I strongly urge you to do everything you can to avoid a withdrawal because you give back most of the benefit you gained from investing in the 401K.

Some plans will allow you to take out a loan against your funds in the plan but there are rules that have to be followed. The loan generally has to be paid back within five years and if you leave the company you could potentially have to pay the money back in as little as 60 days. Again I urge you to use this type of loan as a last resort because your earnings in the fund are much greater than the interest you will be paying yourself when you pay it back.

I personally like the 401K better than a pension plan because I think you have more input than you do in a pension plan. Some pension plans don't require you to make a contribution so on the surface they may seem better because you aren't contributing but you really need to look at the long term return. However, usually when you don't have to make a contribution to a pension plan it simply means your income is reduced by this amount so in the long run the contribution amount is about the same in both plans. Again in my opinion you have more of a choice in a 401k than you do in a pension plan.

An IRA is a Great Substitute for A 40K If You Don't Have Access to a 401K

There is also IRAs that allow you to contribute tax free dollars and the government will allow a tax deduction if you meet certain criteria (see your tax professional for details). The IRA helps you because it allows you to receive payments for the rest of your life if you choose that option.

What is an Individual Retirement Account

An IRA provides you the ability to invest either tax free or tax deferred. There are many different types of accounts but the most common are the traditional and the Roth. The type of individual retirement account you choose depends largely on your investment goals.

Traditional Individual Retirement Account

The traditional individual retirement account allows you to invest tax deferred up to $4000 per year or $5,000 if you are over 50. The amount that you invest is deducted from your taxable income ultimately reducing your tax liability. When the money is withdrawn it is subject to normal taxes and a 10% penalty if withdrawn prior to age 59 1/2. The 10% penalty is waived if the money is used to purchase a house or for approved educational expenses, but you will have to pay normal taxes. The individual retirement account is a great investment tool and provides great flexibility for important expenses. I think the individual retirement account is a great tool for someone who doesn't have access to a 401K investment account.

The Roth Individual Retirement Account

Roth individual retirement accounts were created in 1997 primarily to help the middle class. The Roth is not tax deductible but the funds can be withdrawn without tax liability or penalty except for the interest earned. After five years all contributions including interest can be withdrawn without tax or penalty. You also get the same benefit for a home purchase and education as a traditional individual retirement account.

If you are single you can invest as much as you like in a Roth account if your earnings don't exceed $95,000 for the year. There are stricter limits on the amount you can contribute once you earn a $110,000 as a single filer. The limits for married couples filing jointly starts at $150,000 and gets stricter at $160,000 (see your tax preparer for complete details).

If you qualify for a Roth individual retirement account it has some very attractive features such as the higher limits on deposits, the flexibility of withdrawals, and the fact that you don't have to pay tax on the money when you withdraw it. If you decide to roll your traditional individual retirement account into a Roth individual retirement account you need to make sure you are prepared to pay the tax on the rollover because it will be treated as if you withdrew the money from your traditional individual retirement account. This is a decision you have to make based on your personal situation, your needs and your tax status. To invest in a Roth IRA you must have earned income. You can use a Roth IRA even if you have a 401K or other retirement plan. Contributions must be made by the tax deadline each year. You have the flexibility to invest in whatever investment vehicle you choose.

If You Don't Like The 401K or The IRA An Annuity May Be For You

If you don't have access to a 401K plan and you don't like the IRA then you may want to consider an annuity. An annuity is another tax advantage vehicle that allows you to invest your money before taxes as long as you meet certain criteria (consult your tax professional for details). An annuity gives you options to receive payment at retirement either in a lump sum or life time payments. This is a decision you can make based on your tax status at retirement time.

An annuity is a very important financial planning tool. Depending on your personal financial situation you may be interested in purchasing an annuity or you may have one and need to think about how to collect the money without paying too much in taxes.

What is an annuity?

It's an agreement for one entity to pay another a stream or series of payments. Usually insurance companies write them but a charity or a trust can.

Categories:

Fixed or Variable

Deferred or Immediate

Fixed Period, Fixed Amount, or Lifetime Qualified or Nonqualified Tax status

Single Premium payment arrangement or flexible premium payment

Features:

Tax Consequences

Most investments incur capital gains tax each tax year. However, earnings, capital gains and income from annuities aren't taxable until you withdraw money. 401Ks and IRAs offer the same tax deferral but there is a limit on the amount you can contribute on an annual basis. With an annuity there is no limit on the amount you can contribute. It's a lot easier to withdraw funds from them than from 401ks and IRAs.

Asset Protection

If you are receiving payments from an insurance company the best a creditor can do is collect the payments as you receive them because technically the payments that you made to the insurance company belongs to the insurance company not you. The creditor can't take the money you paid.

Some state laws and court cases also protect some or all of the payments. Your money in tax-favored retirement plans, such as IRAs and 401ks are generally protected.

Of course one of the best ways to protect your assets from creditors is to pay your bills on time. However, anybody can run into tough times when they have problems paying their bills. You have to be careful because when this happens to you there are many companies out there that promise to help you fix your credit but in reality they are just after your money. You can improve your own credit score by monitoring the three main credit bureaus. When you find a mistake you can file a dispute claim with the credit bureau to get it cleared up usually within 30 days. You can also get protection against identity theft. By monitoring your credit on a regular basis you will know if someone tries to open an account in your name.

Investment Options

You can invest in a fixed rate plan which would earn a fixed interest rate, just like a bank Certificate of Deposit (CD). A variable rate plan would invest in stocks, bonds or other mutual funds. Some may offer a feature that guarantees your investment will never fall below its value on its most recent policy anniversary. This would be referred to as a floor.

Income Options

Because these instruments are similar to life insurance policies you can receive payments for the rest of your life. They accomplish this by taking money from your investment, your investment earnings and from the money from other's who didn't live as long as you. Like insurance companies they use actuarial tables to forecast your average life span to determine how much to pay out. When they guess right they win and when they guess wrong the annuitant wins. Over the long run they always come out ahead. Don't get an annuity confused with a whole life insurance policy because there is a big difference. With a whole life insurance policy the interest you earn is very low so you primarily pay enough during your life so when you die your beneficiary receives the face value of the policy. However, this is not a very good investment.

Benefits to Your Estate

You can purchase a guarantee period with your annuity so in the unlikely event you die immediately after your payments start your heirs can still get your money for a specified period usually 10 to 20 years. Another benefit is annuity payments that pass on to beneficiaries are not subject to probate or a part of your will.

Financial Planning Lessons help you learn in a very easy to understand way how to create you own personal financial plan.

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Calculator financial - Fears retirement of losing my money.

Will I have enough money to last the rest of my life? The number a fear to retirees is if they are going to have enough money to retire. Ironically, this fear exists independently of the actual value. Indeed, the active report of $ 10 million people are more concerned with having enough money than people who have 500 thousand dollars of assets. In fact, it is only when people report having more than 100 million dollars do they relax on their financial future.

How could be? The easy answer is what American of all income levels spend more that they do.As your wealth increase so does your expectations of your level life minimum.Quel's interest to have 10 million dollars in the Bank, you ask, if you cannot take advantage?

To answer the question where not, you'll have enough money to last the rest of your life, you discover what is fear. Is based on an assessment of your financial situation of fear or a psychological problem?

To understand the fear of not having enough money, you should consider two things. The first is to evaluate your actual financial situation. The second is to explore the fear of psychological problems.

The best way to minimize your fear about not having enough money for the rest of your life last is to spend less than you make.If you are removed and investment income, are you able to live only interest? (Financial advisors recommend that does no more than five percent of you portfolio each année.Il is assumed that the bad and the good years will be in balance.)(This withdrawal rate, you will have enough to last in your life.) Do you need to tap into the principle, on a regular basis? ideally, you want to leave the quiet principle and grow each year.

If you go into debt to pay for the current way of life, you have some legitimate concerns. If you are not willing or cannot reduce your expenses, explore ways, you can increase your income by working or start-up of an entreprise.Vous can see the work fills time that you would otherwise have used spending money.

Compile a budget so you know how comes in every month and how much goes. The most important aspect of the budget is to explore your fixed and discretionary expenses.Fixed expenses are what you spend each month on housing loans, and while most everything else circulation.La is discretionary.

Browse your discrétionnaires.Regardez spend how much you eat purchases off and unnecessary.Many people, especially women, store when they are bored. If you are bored and purchases to occupy your time, explore other activities which would commit your time. You could volunteer for Australian store. (spending money, your step.)

Many financial concerns are based to pay for the health care and other expenses in the future. Based on your income, you can purchase additional medical and long-term insurance.It is important to find a financial professional who can advise you on your financial situation current and projected and how best to plan your future as you age.

You've done everything you can prepare your future by seeking professional advice and understand your financial situation.You have reduced spending, and increase your income and you still have concerns with money, you may want to Explorer from a psychological perspective.Psychological problems of money mean that money helps resolve emotional needs.Examine your beliefs about money and possessions.Maintain a life of certain to impress your friends or family you concerned?Do you think you need to give your kids money when they ask for it? do you you need you can buy what you want, when you want to have a sense of self-worth?Do you use money as a means of manipulating your other concerns significant?

Another challenge of adult retirees is learning to live without earning money while working.Remember when you have children and asked your parents you buy a toy.They replied, "If you want the yo-yo, you will save money to buy."A large part of the identity of Americans has just being the employees and the fournisseurs.Cela is particularly true for men. ""."If I am over a supplier, what value should I?".This is a State of mind different let your money work for you.

The transition to the malfunction is a huge changement.Comprendre Dynamics varied your relationship with money will help determine the peace of mind you have in your years later.

(This article is not intended to provide financial advice, but only offer information to help you explore your economic situation.)

Cathy Severson, is a leading authority in planning lifelong retraite.Baby boomers understand that it is not your parents.Découvrez retired how do the rest of your life the best of your life with free ingredients e-book 7 for a retirement satisfies the http://tinyurl.com/8moymb