Planned retirement age
I plan to retire at the age of 60 years. It is my hope that I shall have accumulated adequate resources to finance my post-retirement expenses. I also believe that I shall have done everything I have wished for in my career.
Retirement money
I will need about $641,000 for my retirement. This determination is based on my current and the expected salary as well as salary increases. The retirement fund requirement is also based on my current and expected expenditure. It also takes into consideration annual savings for retirement. I anticipate that my annual retirement expenditure will be about $80,000. This will be about 90% of the expected salary in the last year of employment excluding income from social security. The amount required for retirement should be able to cater for post-retirement expenditures as well as planned investments.
Accumulating assets for retirement
I will create a portfolio of assets to diversify risks and to earn returns. My portfolio of assets would include assets and investments that will guarantee a stream of income in my retirement years. I plan to have a maximum of 20% of my retirement savings in bank accounts. The rest will be in investments in real estate, shares and bonds. I plan to acquire a rental house by the time I hit 40 years. Real estate and tangible assets are a better investment since they are less affected by inflation and other market factors than bonds and stocks. 60% of my investments in securities will be made up of stocks. Stocks are suitable before retirement since they generate higher returns than bonds. However, they entail a higher risk than that of bonds. Before retirement, I can hold the stocks over a long term since the focus is on maximising returns and not minimising the risk involved. When approaching retirement, I will convert most of my securities investments into bonds. Bonds may not earn higher returns as stocks but are less risky. At this stage, risk becomes a priority to returns. I would also invest a portion of my savings in mutual funds. Through the investment in stocks, bonds and real estate, I expect to have a stream of incomes that will fund my retirement needs.
Anticipated salary
Type of investments for retirement income
In my retirement, I plan to earn a stream of incomes equal to or more than the employment income to fund my retirement needs. Before I retire, I plan to invest in real estate by acquiring rental property. This would earn me continuous income even after retirement. I also plan to invest in securities, both corporate and sovereign. I would invest in the stock market and acquire growth and stability stocks to earn high returns (King and Carey). The investment portfolio will also comprise of corporate bonds and municipal as well as Treasury bills and securities. In the early years of my career, I will focus more on stocks since they generate higher returns than bonds although they have a greater risk. However, in the late years of my career and during retirement, I will focus more on bonds since they have a lower risk than stocks. Government bonds and Treasury bills will be the most appropriate after retirement since the risk involved is very low.
Risks facing retirees
Current and future retirees face the risk of outliving their assets. Some people retire at 58 and may live up to 90s and even beyond. Without adequate retirement funds, the retiree may outlive his/her assets thus leading to poor living standards and inability to meet bills.
They also face the stock market risk. The volatility of stock markets has increased in the last years. Adverse occurrences in the stock market cause losses to stockholders. Most current and future retirees have invested their retirement savings in securities markets (King and Carey). The fall of the stock market can lead to losses thus eroding the retirement fund.
They also face the interest rate risk. The interest rate has been maintained at a low level (near zero) for the last few years. This impacts the earnings of retirees since they are forced to invest their funds and earn lower interest rates. When interest rates are falling, the return on securities is adversely affected.
They also face the inflation risk. The rising prices of commodities increase the cost of living. Therefore, the fixed income is not able to maintain the living standards. Inflation also affects the values of investments thus leading to losses to current and future retirees.
Impact of social security and Medicare
Availability of social security and Medicare positively impacts current and future retirees. They cater for the retirees’ basic needs and healthcare. This implies that income from other retirement plans can be used to fund other retirement expenses. The programs help retirees with lower incomes to live a better life.
The above and other retirement plans face a myriad of challenges such as inflation, longevity, interest rate, among other challenges. Life expectancy has increased hence some people outlive their retirement savings. The volatility of the financial markets also affects retirement plans since adverse movements can wipe out retirement investments in securities markets.
Impact of inflation on the retirement income
Inflation would adversely affect my retirement income. Retirement plans and social securities do not adjust the benefits for inflation. Inflation implies an increase in the general price level. When the rate of inflation increases, it becomes difficult to maintain the same standard of living. The retirement income is adversely affected since inflation reduces real income (King and Carey). This implies that the retirement income may not be adequate to sustain a better life. Inflation also reduces the value of money making it difficult to afford the same quantity and quality of goods and services as before. Other sources of income are necessary to maintain the quality of life when the rate of inflation is high.
Steps for retirement protection
There are several measures for protection during retirement. One way is to maintain a portfolio of investments. The investments will generate income to fund retirement needs thus enabling the retiree to maintain a good life. Investments may also mitigate the adverse impact of inflation on retirement income (King and Carey 236). The income received from investments is based on the current market conditions. Besides, the retiree must invest in appropriate investments. This involves creating a balance between the desire to earn high returns and the risk involved. More focus should be placed on low-risk investments such as bonds and treasury bills. Secondly, a retiree should avoid debt at all cost. It is not bad to have debt, but it must be supported by a source of income.
Works cited
King, Jane and Mary Carey. Personal Finance: A Practical Approach. Oxford, UK: OUP
Oxford, 2013. Print.
