Introduction
Retirement is a significant part of human life that shows a new life far from day-to-day employment. It signifies new opportunities and brings about good or bad changes (Elisa, 2023). For people, whether married or in a domestic partnership, the retirement plan must address both individuals’ financial needs and ambitions, meaning they require a sound investment plan.
Investment Planning
An investment plan is a systematic approach specifying how an individual or entity wants to deploy financial resources to various investment possibilities to attain specific financial goals. An investment plan gives a clear path for making informed decisions about increasing and managing one’s money over time. The age of the individual is used to create a proper financial plan. Their current life stage considerably impacts the timing for achieving retirement goals and the wealth accumulation tactics that will be most effective.
The client’s name is Winfred Pierce. She is a 41-year-old married woman who works for the World Bank Washington branch and currently earns a gross salary of $175,900 annually. Her retirement goal is to have enough savings and investments to support living expenses without relying on employment income and maintain the same lifestyle in retirement as she had during her working years, like traveling, leisure activities, socializing, and saving enough money for health insurance.
Factors to Consider when developing a retirement plan
Several elements must be carefully addressed when creating a complete retirement plan to ensure the approach matches an individual’s particular circumstances and ambitions. Adults differ in their expectations of how purposeful they will be in retirement (Hill, 2022). Among these characteristics, age is a cornerstone that significantly impacts the entire planning process. An individual’s current age is the beginning point, providing insight into the years till retirement. This timeframe directly impacts the time available for retirement planning, saving, and investing. The targeted retirement age is equally important because it determines the length of the retirement phase and the rate at which funds must be built.
Cohesive methods must be considered for couples with shared ambitions, ensuring that the plan matches their solid vision for retirement. On the other hand, single people take a different approach to planning, focusing only on securing one’s financial future. Determining saving rates, investment selections, and planned lifestyle changes demands a customized approach that considers individual goals and risk tolerance.
For individuals who have dependents, the plan must consider not just the retiree’s financial well-being but also the well-being of those who rely on them for assistance. It includes assessing educational costs, healthcare requirements, and future caring responsibilities that stretch into retirement years.
Balancing these responsibilities with one’s financial security becomes crucial. Furthermore, dependents influence the retirement timetable because the retiree may need to offer support far into their senior years. As a result, asset creation and distribution plans must be devised with a dual-purpose approach, meeting the immediate requirements of dependents while ensuring the retiree’s long-term financial viability (Schmied, 2023).
Finally, understanding the critical role of dependents in the retirement equation and combining their demands with general financial goals provides a holistic, compassionate, and well-suited way to the realities of familial duties retirement plans.
Health influences retirement planning in various ways, including physical well-being and financial issues (Wu & Chao, 2023). The timing and quality of retirement are directly affected by one’s health. Individuals in good health may retire at a younger age for an active and meaningful retirement. In contrast, those with health issues may need to continue working to maintain access to healthcare coverage or save enough money for anticipated medical bills. Addressing health considerations in the retirement plan ensures that the financial strategy remains resilient in changing health circumstances, allowing individuals to navigate the retirement years with the confidence and security needed to focus on their well-being and favorite pursuits.
Life expectancy is an essential guidepost for determining the duration and sustainability of a retirement plan. Estimating how long one might live after retirement significantly impacts decisions about savings, investments, income sources, and overall financial goals. Longevity risk, or the potential of outliving one’s retirement resources, becomes a significant concern (Altig et al., 2023).
The concerns about legacy planning and leaving assets to heirs become linked with the prospect of living a longer life. Recognizing the impact of life expectancy on retirement planning allows for developing a resilient and flexible approach that protects financial stability while embracing the possibility of a fulfilling and longer retirement experience.
These elements are frequently the core foundations of retirement income. Government-provided social security benefits provide a source of guaranteed income after retirement. One must consider when to begin collecting these benefits, whether early, at full retirement age, or later, significantly impacting the entire retirement income strategy (Lalive et al., 2023). If available, pension plans provide an extra source of income, particularly for those who have contributed to employer-sponsored pension plans.
Pension distribution decisions impact income flow, whether lump sum or annuity payments. It is critical to coordinate the timing of social security and pension payouts to maximize income while minimizing tax effects. Eligibility restrictions, prospective cost-of-living adjustments, and survivor benefit possibilities are all essential considerations for social security and pension programs. Furthermore, it is critical to integrate these benefits with other retirement accounts and investing methods in order to provide a balanced and consistent income stream.
Winfred’s Retirement Investment Plan
Winfred has set an ambition of retiring at 55, motivated by a strong desire for financial independence and a life characterized by personal interests. She is meticulously preparing with an eye toward early retirement, hoping to create a sufficient retirement fund to sustain her preferred lifestyle.
Winfred hopes for a $110,000 annual retirement income after a 2% projected inflation. To achieve this saving strategy, she will have to use the 4% withdrawal rule, and she must save $2,750,000 to get ($110,000 / 4%) or save 25% of her annual income, which is $25,000 per year. She will contribute to tax-advantaged retirement accounts like a 401(k) and Roth IRA.
The client aims to take proactive actions to protect her well-being by researching better health choices such as private health insurance or part-time work with healthcare benefits. Her thorough attention to healthcare demonstrates her dedication to a retirement that includes financial security and the critical factor of maintaining her health and quality of life throughout her early retirement years.
She also intends to diversify her investment portfolio by investing in bonds and fixed-income securities to mitigate her risks. Winfred plans to set up a cupcake bakery as a side hustle and a hobby.
She prioritizes paying off her outstanding bills to approach retirement on a stable basis. Winfred hopes to unburden herself from financial duties by focusing on debt repayment before her planned retirement age, allowing a smoother transition into the next chapter of life. Her methodical approach to debt reduction corresponds with her desire for a debt-free retirement. It represents her commitment to a more secure and stress-free financial future beyond her regular working years.
Retirement Assets Allocation
Retirement asset allocation is a vital component of retirement planning that entails splitting the investment portfolio among several types of assets, such as cash, securities, stocks, and other investments. This asset allocation helps an individual protect himself or herself against inflation, manage risks, ease liquidity, and increase income generation (Waggle & Basil, 2000).
Winfred is in her early forties and has decided to invest in high-risk assets such as stocks, equities, and real estate because these investments are growth-oriented. She intends to shift towards wealth preservation in seven years, investing in fixed securities, bonds, and less risky assets like a cupcake bakery.
Portfolio Allocation
Winfred will maintain a lower allocation of assets in stocks, fixed securities, and bonds in her early retirement years and shift to capital preservation, easy liquidity, and cupcake business later in life. Of the 25% invested income, 60% will be invested in stocks, and 30% will be allocated to bonds. The remaining 10% plus additional funds will fund her cupcake business and fixed security assets like rentals and Air Band B.
Conclusion
In conclusion, properly distributing retirement assets is critical for developing a successful plan. It manages risk, balances development and stability, protects against inflation, generates revenue, and provides emotional peace of mind. Consulting with a financial advisor often helps individuals develop an asset allocation strategy suited to their needs and goals.
References
Altig, D., Kotlikoff, L. J., & Ye, V. Y. (2023). How Much Lifetime Social Security Benefits Are Americans Leaving on the Table? Tax Policy and the Economy, 37(1), 135-173.
Lalive, R., Magesan, A., & Staubli, S. (2023). How social security reform affects retirement and pension claiming. American Economic Journal: Economic Policy, 15(3), 115-150.
Schmied, J. (2023). The replacement rate that maintains income satisfaction through retirement: The question of income-dependence. The Journal of the Economics of Ageing, 100471.
Tambellini, E. (2023). Exploring the relationship between working history, retirement transition, and women’s life satisfaction. Ageing & Society, 43(8), 1754-1783. (Hill, 2022)
Waggle, D., & Englis, B. (2000). Asset allocation decisions in retirement accounts: an all-or-nothing proposition. Financial Services Review, 9(1), 79–92.
Wu, J., & Chao, Q. (2023). How older adults fulfill their retirement plans relates to positive mental health: a path model analysis of social activity and self-esteem. Current Psychology, 1-12.
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