capstone project(vinita grover)11107522
TRANSCRIPT
Synopsis On
Investor’s Strategy towards Retirement Planning in Private Sector
Submitted To Lovely Professional University
In partial fulfillment of the requirements for the award of degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted By: Supervisor:
Group No:- F 39 Abhishek Chaudhry (15672)
Aijaz Ahmad Thoker (11100488) Assistant professor
Priyanka Kumari (11100597) LPU
Sangeet Choudhary (11104463)
Vinita Grover (11107522)
DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
PUNJAB
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CERTIFICATION APPROVAL BY FACULTY ADVISOR
TO WHOM IT MAY CONCERN
This is to certify that the project report titled “Investor’s Strategy Towards Retirement
Planning in Private Sector” carried out by Mr. Aijaz Ahmad Thoker, Ms. Priyanka Kumari,
Mr. Sangeet Chaudhry, Ms. Vinita Grover has been accomplished under my guidance &
supervision as a duly registered MBA students of the Lovely Professional University, Phagwara.
This project is being submitted by them in the partial fulfillment of the requirements for the
award of the Master of Business Administration from Lovely Professional University.
This dissertation represents their original work and are worthy of consideration for the award of
the degree of Master of Business Administration.
Mr. Abhishek Chaudhry(15672)
(Name & Signature of the Faculty Advisor)
Date:
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DECLARATION OF AUTHENTICITY BY STUDENTS
DECLARATION
We hereby declare that the work presented herein is genuine work done originally by us and has
not been published or submitted elsewhere for the requirement of a degree program. Any
literature, data or works done by others and cited within this dissertation has been given due
acknowledgement and listed in the reference section.
Aijaz Ahmad Thoker Priyanka Kumari
(Student's name & Signature) (Student's name & Signature)
(11100488) (11100597)
Date: Date:
Sangeet Choudhary Vinita Grover
(Student's name & Signature) (Student's name & Signature)
(11104463) (11107522)
Date: Date:
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ACKNOWLEDGEMENT
We would like to thank our parents for their support and blessings through our life. We take this
opportunity to thank all those guidepost who really acted as lightening pillars to enlighten their
way throughout this project that has led to successful and satisfactory completion of this study.
We would like to thank our friends and family for the moral support and ideas to go through in
details.
We are very thankful to our supervisor, Mr. Abhishek Chaudhry, whose support from the
initial day till the end allowed us to develop a good understanding of the subject. Last but not
least, we would like to thank God who has helped to achieve and overcome all the obstacles.
Thank you
Aijaz Ahmad Thoker
Priyanka Kumari
Sangeet Choudhary
Vinita Grover
WORK PLAN
S.NO Tasks Start Date End Date
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1 Study of topic(Introduction) 25/10/2012 31/10/2012
2 Work on Literature Review 1/11/2012 12/11/2012
3 Work on research Methodology 13/11/2012 20/11/2012
4 Work on Tentative report 20/11/2012 24/11/2012
5 Work on Questionnaire 25/11/2012 15/12/2012
6 Filling of
Questionnaire(Research)
7/1/2013 15/1/2013
7 Analysis and Interpretation of
data collected
16/1/1013 20/2/2013
8 Work on Suggestions/
Recommendations
21/2/2013 18/3/2013
9 Documentation of final report 19/3/2013 31/3/2013
TABLE OF CONTENTS
Chapter No. Contents Page No.
1. Introduction 8
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1.1
1.2
1.3
1.4
1.5
1.6
Retirement planning in India
Retirement planning tips in India 2012-2013
Benefits for private sector workers
Investment vehicles/plans
Investment strategies
Withdrawal strategies
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12
13
15
20
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2. Review of Literature 25
3.
3.1
3.2
3.3
3.4
Present work
Need and Scope of study
Objectives
Research methodology
Expected outcome of the study
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38
39
40
4. Conclusion 41
5. References 42
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CHAPTER 1
INTRODUCTION
INTRODUCTION
Retirement means different things to different people. To some it might bring a blessed release
after the hectic earning years. A time for relaxation, peace, and a time of indulging in all the
activities that got missed out before.
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But for most, retirement conjures up a scary picture – a time of financial insecurity, of having to
cut down on most things that one took for granted before, having the constant worry of
compromising on the standard of living that one was used to before, and being financially
dependent one’s children.
Due to the various challenges and risks associated with retirement, we recommend retirement
planning should be given its due importance and starts as soon as possible. To make retirement a
truly enjoyable time, one needs to plan ahead. The most common mistake is either not planning
for your retirement or leaving it to the last possible moment.
Retirement Planning Works in 3 Steps – Accumulation – Preservation - Distribution.
Accumulation is the stage where we invest to generate a decent corpus which is assumed to take
care of us during retirement years. This accumulation we do till retirement.
In Preservation stage we become cautious about our accumulated corpus and we start coming
out of risky asset classes and start shifting the corpus into debt, though savings doesn’t stop
during this stage also, as our regular income stream is intact.
Distribution is the stage when we make arrangements to use the corpus through interest,
dividends and withdrawing capital which we have accumulated. In the complete retirement
planning, distribution is the most important of all, as all our efforts of accumulation and
preservation were directed towards this stage only. With a regular income stream no longer
available, the savings made over one’s working years now have to provide for all needs. Now
your investments need to create a pay cheque for you. In accumulation and preservation stages
the mistakes can be ignored as you were getting regular income, but at distribution stage, small
mistakes can cost huge.
1.1 RETIREMENT PLANNING IN INDIA:
In our country, where a very small number (less than 10% of the workforce which is in the
organized sector) has access to some social security like provident funds, but the rest – almost
90% of the workforce – has no social security, Retirement Planning is a major issue. If you
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take care of your retirement planning, your future will probably be much better and in control
than without doing anything. It has become extremely important to plan for one’s retirement and
at least take a step towards it. We are going to list down some pointers which shows why
retirement in future India will be much bigger and serious issue. Look at all the points in totality
and you will realize that planning for retirement is not just an option but a necessity these days.
1. Increase in life expectancy in India
One of the major problems while doing retirement planning is to assume how long the retirement
will last. This has a direct relation with life expectancy. As a country develops, its healthcare and
overall life style level improves and life expectancy increases. You can see the life expectancy in
India is moving up and up with each passing decade. It was 49 yrs in year 1970, increased to 64
yrs today in 2011 and is set to increase up to 73-76 yrs in 2040-50 (projections).
Now this life expectancy of 76 yrs does not mean that everyone will die at age 76, it’s an
average. If you personally have a better life style, better health and better medical access
compared to a average Indian, chances are you will have a much more life expectancy which will
cross 85-90 yrs . Leave future, even today you can see more and more people living up to an age
of 80-85. So, you can safely assume that you will have to accumulate enough money which can
last at least 30-35 yrs after your retirement, else make sure you die with your money itself.
Overall the conclusion is “Longer life in future will mean more money required in retirement
compared to today. Simple!”
2. Increase in Dependency Ratio
Dependency ratio means the ratio of Old age population vs. Young population. To calculate it,
just take total population above Age 60 and divide it with population between 15 yrs – 60 yrs and
you will get Dependency Ratio. You will be surprised to know that right now in 2011, the
dependency ratio is around 5% in India, but in year 2050 this ratio will rise to 15%, which shows
you that more and more people are going to be in the old age group compared to young
population. See the chart below:
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This is not a small issue. More and more people will be shifting to this “retired” category in
coming decades with more loads on the working population. At this current moment, we are one
of the youngest countries today with as high as 50% population below 25 yrs of age, but will this
continue forever? With more population control measures at government and public level, these
numbers are going to be different in future. Hence the conclusion is “More and more people will
come into retired category as percentage of population in coming future”.
3. Decline of joint family structure
If it was 1970, you could have safely assumed that you will be probably spending your
retirement with your grown up kids, playing with your grand children, but is it happening
anymore in these changing times? More and more people are moving in different parts of
country in search of education, jobs and settling their compared to old times. Parents on the other
hand don’t choose to move most of the times as they feel connected to the same place where they
have spend all their life and more than that , they have their social groups at those native places.
Very rarely I have seen that parents leave those places where they have spent 30-50 yrs of their
life.
Bigger opportunities in life and a complex life style have resulted in smaller family size and it’s
going down each decade. As per research reports of National Family Health Survey , Ministry of
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Health and Family Welfare (MOHFW), Government of India, average household size in the year
1992 was 5.7, which means each family had 5.7 members, this came down to 5.4 in 1998 and as
per last reports of 2007, average family size is 4.8. Now imagine this, each family having approx
4.8 members, that’s today! Will it shrink further to 4.0 in coming decades, what do you think?
I think if it does not go down, it will definitely not go up! That my personal opinion. So the
conclusion is “There are higher chances that you will be living separately and not with your
kids, by choice or by society structure, unless you are living in smaller towns and villages.”
4. Change in perception about Retirement Planning
In a poll 83% said that they would like to be self-dependent and want to save all the money they
would require in their retirement. Around 10% said that this is the first time they are having any
thoughts about their retirement after seeing the poll and just 7% people expect to be fully or
partially dependent on their children for their retirement. Which shows us that as high as 93%
readers on this blog who participated in the poll want to be self dependent and plan their
retirement themselves? Look at the poll results below.
1.2 RETIREMENT PLANNING TIPS IN INDIA 2012-2013
Retirement Planning Tips in India 2012-2013: People have different plans for retired life. For
example you may think of retirement as a time to relax, to laze around, to spend more time with
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family, travel or write a masterpiece. Attaining financial independence after retirement will not
be just a dream if the following steps are followed with steady discipline, perseverance and if
smart investment strategies.
Start saving early: Nobody takes retirement seriously. But the fact is that even a small
sum of money saved regularly and invested regularly makes a big amount which will
come in very handy after retirement. One should not believe that after retirement, one can
place all savings into income generating investment and spend rest of life in happiness.
Retirement should be your top priority: Retirement should be kept as a top priority
because if one does not keep it at the top one might end up depending on one's children,
which probably no one would relish.
Create a Retirement Plan: Develop a plan for saving based on your requirements at the
time of retirement. The goals you keep for saving depend on your lifestyle but you will
need at least about 66% of your pre-retirement income to maintain your standard of living
when you stop working.
Understand your Pension Plan: If your employer offers pension plan, understand
carefully your benefit level, financial stability of plan and the vesting period. Use
retirement plans even if you already have enough money. With retirement plans your
money grows in a tax efficient manner and compounding interest over time makes it one
of the best investment options.
Balance your risk tolerance and your investment strategy: Evaluate your risk profile
and then balance your investment strategy to invest in various avenues to get the most out
of your retirement money keeping your risk profile unhampered.
Diversify your investments & allocate your assets carefully: Depending on your work
profile divide your savings into equity, bonds, Mutual Funds, and other investment
avenues. Don't invest too heavily in one sector or one company, since the risk associated
with putting all your eggs in one basket is indeed very high.
1.3 BENEFITS FOR PRIVATE SECTOR WORKERS
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Superannuation:
Superannuation Fund is a retirement benefit given to employees by the Company. Normally the
Company has a link with agencies like LIC Superannuation Fund, where their contributions are
paid. The Company pays 15% of basic wages as superannuation contribution. There is no
contribution from the employee. This contribution is invested by the Fund in various securities as
per investment pattern prescribed. Interest on contributions is credited to the members account.
Normally the rate of interest is equivalent to the PF interest rate. On attaining the retirement age,
the member is eligible to take 25% of the balance available in his/her account as a tax free
benefit. The balance 75% is put in a annuity fund, and the agency (LIC) will pay the member a
monthly/quarterly/periodic annuity returns depending on the option exercised by the member.
This payment received regularly is taxable. In the case of resignation of the employee, the
employee has the option to transfer his amount to the new employer. If the new employer does
not have a Superannuation scheme, then the employee can withdraw the amount in the account,
subject to deduction of tax and approval of IT department, or retain the amount in the Fund, till
the superannuation age. Normally Companies do not extend the Superannuation benefits to all
employees- but only to a specific category of employees - like for example Level-1 of Managers
onwards.
Gratuity:
Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for
the services offered by the employee in the company. Gratuity is a defined benefit plan and is
one of the many retirement benefits offered by the employer to the employee upon leaving his
job. An employee may leave his job for various reasons, such as - retirement/superannuation, for
a better job elsewhere, on being retrenched or by way of voluntary retirement.
Eligibility:
As per Sec 10 (10) of Income Tax Act 1961, gratuity is paid when an employee completes 5 or
more years of full time service with the employer.
Tax treatment of Gratuity
The gratuity so received by the employee is taxable under the head ‘Income from salary’. In case
gratuity is received by the nominee/legal heirs of the employee, the same is taxable in their hands
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under the head ‘Income from other sources’. This tax treatment varies for different categories of
individual assessee. We shall discuss the tax treatment of gratuity for each assessee in detail.
In case of government employees – they are fully exempt from income tax arising on from
receipt of gratuity. In case of non-government employees covered under the Payment of Gratuity
Act, 1972 – Maximum exemption from tax is least of:
I. Actual gratuity received; or
II. Rs. 10, 00,000; or
III. 15 days’ salary for each completed year of service or part there
1.4 INVESTMENT VEHICLES/PLANS
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Provident Fund:
There are many investment vehicles in our country for the purpose of saving for one’s
retirement. But the most popular one among them has been ‘Provident Fund’. For a long time,
provident fund has been the primary investment vehicle for saving for an individual’s retirement
nest until the entry of mutual funds and other new innovative products such as ULIP (Unit
Linked Insurance Policy), ULPP (Unit Linked Pension Policy) etc.
Provident fund can be considered as a debt instrument as majority of the corpus is invested in
debt.
How it works?
On maturity – Employee gets his contribution + Employer’s contribution and interest
accrued thereon on maturity and/or before maturity (due to pre-mature withdrawal, death of
the deposit holder etc.)
On death of the deposit holder before maturity – In case of death of the deposit
holder/employee, the sum so accumulated is paid to the legal heirs.
Annuities
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A fixed sum (%) is deducted
from employee’s salary as
contribution to Provident Fund
Employer also contributes his
share to the Provident Fund
(Except Public Provident Fund).
The pooled sum is invested in
Various instruments and majority in
debt
An annuity is a contract between the insurer and an individual whereby the insurer agrees to pay
a specified amount in future in exchange for the money now paid by the individual. It is an
investment that you make, either in a lump sum or through installments over a specified period
of time (called the ‘accumulation period’), in return for which you receive a specific sum at
regular intervals (either annually, semi-annually, quarterly or monthly), either for life or for a
fixed number of years.
By buying an annuity or a pension plan the annuitant receives guaranteed income for the period
as specified in the policy. Annuities are also popularly known as ‘pension plans’. This is because
they are typically bought to generate regular income during one’s retired life. Annuities can be
viewed as a solution to one of the biggest financial insecurities of old age; outliving one’s
retirement corpus. The period when you are investing is called ‘accumulation phase’. In return
for the investment, the annuitant receives back a specific sum every year, every half year or
every month, either for life or a fixed number of years. This period when the annuitant receives
the payments is known as the ‘distribution phase’. Generally, one opts to receive annuity
payments (also known as ‘un commuted payments’) upon retirement. One important aspect is to
make sure that the payments you receive will meet your income needs during retirement.
Some of the common pay out options upon retirement are–
• Receive lump-sum payment of all of the money you have accumulated during your working
years.
• Receive regular payments over a specific period of time.
Types of Pension Plans Including New Pension Scheme (NPS) With Its Features
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The two most common types of pension plans are the defined contribution (or the money
purchase plan) and the defined benefit plan. Sometimes these two plans are combined and the
combination is thus known as hybrid plans or combination plans.
Defined Benefit (DB) plans:
In these kinds of plans, the benefit to be paid to the employee is defined or fixed at the beginning
of the plan, e.g. final year’s salary multiply by number of years of service. Here the employer
funds the plan and the employee reaps the rewards upon retirement. The employer has to use
actuarial assumptions like retirement age, mortality, expected life span, expected compensation
increase and other demographic assumption to estimate the pension liability and accordingly
contribute in the pension plan. From an employer’s perspective, defined-benefit plans are an
ongoing liability. Returns on the plans are assumed and estimated in such a way to get the
desired payout to the employee. The funding for these plans must come from corporate earnings
– which affect the company profits. The impact on profits can weaken a company’s ability to
compete. Moreover the demographics or the assumptions keep changing hence companies all
around the world are slowly shifting the burden towards employees by introducing ‘defined
contribution plans’. The investment risk is borne by the employer in the defined benefit plan.
Defined Contribution (DC) plans:
This is also known as ‘money purchase plan’. Under this plan, the contribution to the pension
plan by the employee is fixed (say 12% of salary) and the same is matched by the employer. The
money is placed in the investment instruments selected by you in your investment account. After
you retire, these investments along with interest are used to buy pension or annuity.
However, under DC plan, one cannot be sure of the final pension amount at retirement.
Ultimately, the pension benefit that you are going to receive after your retirement will depend
upon the performance of the investment made on your behalf. Unlike a defined-benefit plan,
where the employee knows exactly what his or her benefits will be upon retirement, there is no
such certainty regarding investments in a defined-contribution plan. After the money is pooled
into the retirement account, it’s up to the uncertainties of the investments to determine the final
outcome.
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Apart from pension plans of employers, there are two broad categories of pension plans from life
insurers - Traditional endowment policies and unit-linked policies. They differ primarily in the
way the money of the policyholder is invested and grows during the accumulation phase. A
traditional plan invests primarily in debt instruments. The buyer needs to choose a sum assured
that becomes his maturity corpus if he survives the term. Over and above this guaranteed corpus,
he would get loyalty additions and bonuses which the company would declare from time to time.
The loyalty addition will be declared for the policy holder based on the period for which he has
paid the premium amount even in case of death. Bonus is the amount given to the policy holder
apart from their maturity or death benefits. The additions depend on the performance of the
company and its profits. If the policyholder dies before the plan’s maturity, the nominee gets the
sum assured plus the additions. On survival, the policyholder gets the sum assured plus the bonus
and loyalty additions for investing in the second stage.
Mutual funds also have started offering pension plans, which are also targeted towards saving for
one’s retirement. These are debt-oriented balanced funds that take equity exposure of up to 40
per cent and invest the balance in debt instruments. Though they are hybrid in nature, their equity
exposure is much lower than balanced funds that invest up to 65 to 70 percent in equity.
Other pension plans for private players:
Nowadays there are a number of private insurance players in the market. All of them generally
provide two types of pension plans - with life cover and without life cover. However the
Insurance Regulatory body IRDA has proposed mandatory life cover with Pension products. The
‘with life cover’ pension plans offer an assured life cover in case of an eventuality, even if the
corpus built till the date of death happens to be below that amount.
Under the ‘without cover’ pension plan, the corpus built till the date of death (net of deductions
like expenses and premiums unpaid) is given out to the nominees in case of an eventuality, with
no sum assured. The taxability of a pension plan is determined in two stages. The first is at the
time of making annual premium payments and other at the time of maturity. Premium payments
towards pension plans are eligible for deduction under Section 80C of Income tax Act 1961. The
overall limit for deduction under Sections 80C and 80C is Rs 1 lakh. In other words, one is
eligible for same tax deduction for the premium amount paid for; with or without life cover
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pension plans. At the time of maturity, the commuted value of the pension (lump sum amount)
which is received from a life insurance plan is tax-free.
However, the monthly pension amounts are fully taxable and included in one’s taxable income,
irrespective of whether or not the policy holder claimed the deduction under Section 80C or
Section 80C at the time of payment of premium.
Reverse Mortgage:
A house can generate money by way of rent, which improves one’s financial situation. This is
the reason why the concept of ‘Reverse Mortgage’ was introduced. Although reverse mortgage is
a well-developed product in the West 3 decades ago, it is a fairly new concept in India. A reverse
mortgage is a loan available to senior citizens. As its name suggests, it is exactly opposite of a
typical home loan, where repayments are made to the housing finance company (HFC)/ bank
every month until the tenure of the loan. Reverse mortgage is so named because the payment
stream is reversed, that is instead of the borrower making monthly payments to the lender, the
lender makes payments to the borrower. The process is simple. Once you pledge your house for
reverse mortgage with any HFC/ bank, the HFC/ bank estimates the value of the house. Then,
taking into account the cost of credit, it makes monthly payments to you. The loan is typically
settled after the death of the owner/co-owners.
1.5 INVESTMENT STRATEGY:
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Life cycling Strategies:
A lifecycle approach to investing in retirement normally involves reducing the exposure to risky
(or growth) assets in the retiree’s portfolio as he or she ages (or approaches a given target date). A
criticism of this approach is that its pre-programmed schedule (“glide path”) takes no account of
actual investment returns experienced by the retiree and the resultant adequacy of the retiree
assets to sustainably provide for the planned level of drawdown over their remaining lifetime.
But does the strategy of switching out of equities with time, popularly known as lifecycle
investing, benefit investors? Empirical research has generally found that a switch to low-risk
assets prior to retirement can reduce the risk of confronting the most extreme negative outcomes.
Lifecycle investment strategies are also said to reduce the volatility of wealth outcomes making
them desirable to investors who seek a reliable estimate of final pension a few years before
retirement (for example, see Blake, Cairns, and Dowd, 2001). On the other hand, most
researchers note that these benefits come at a substantial cost to the investor - giving up
significant upside potential of wealth accumulation offered by more aggressive strategies (Booth
and Yakoubov, 2004; Byrne et al., 2007). Bodie and Treussard (2007) argue that deterministic
target date funds – as commonly implemented - are optimal for some investors, but not for
others, with suitability depending on the investor’s risk aversion and human capital risk.
A modified approach which aims to address this shortcoming can be called dynamic/smart life
cycling. Under this approach an ideal (target) and worst case (minimum) level annual indexed
drawdown from the retiree’s account is established upfront. The lifecycle glide path is not pre-
programmed in advance but is varied over time based on the size of the retiree’s account balance
(reflecting investment returns achieved on the account) to date and the corresponding sustainable
income (SI) that the account balance is likely to be able to support over the retiree’s future
lifetime. The account will be without risked when the SI approaches the target income (so as to
“lock in” the ideal income), and also when the SI approaches the minimum income (to protect
against income falling below this level). Between these two extremes, the account will take on
more risk based on the relative priorities for attaining target income and avoiding falling to or
below minimum income.
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Various refinements could be added to the basic design — for example, rather than fully
derisking, a minimum level of growth assets (possibly age related) or a constraint on the size of
shifts in allocation in any year, could be applied to reduce transaction costs and to ensure the
retiree retains a risk exposure which is consistent with their remaining investment time horizon.
While dynamic life cycling is more complex than traditional life cycling, it is a more
conceptually sound approach — it produces a glide path appropriate to members’ retirement
income objectives rather than assuming a purely age-based risk tolerance. To apply this approach,
the actual glide path rules would be developed by the trustee taking into account the relative
priorities for attaining target income and avoiding falling to or below the minimum income. If the
dynamic lifecycle option is to be used as a default investment option, the design process would
involve analyzing the profile of future retirees in the default option and determining suitable
target and minimum income levels to be used in setting the glide path.
Dynamic asset allocation strategy is where the switching of assets at any stage is based on
cumulative investment performance of the portfolio relative to the investors’ target at that stage.
Unlike conventional lifecycle asset allocation rules where the switching of assets is preordained
to be unidirectional, this dynamic strategy can switch assets in both directions: from aggressive
to conservative and vice versa.
Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle:
The amount of money, expressed as a percentage or ratio that one deducts from his/her
disposable personal income to set aside as a nest egg or for retirement. The cash accumulated is
typically put into very low-risk investments (depending on various factors such as expected time
until retirement), like a money market fund or a personal IRA comprised of non-aggressive
mutual funds, stocks and bonds.
1.6 Withdrawal Strategies:
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4% Rule:
The first strategy considered is the 4% Rule described above. Stated simply, in the first year of
retirement, a retiree will withdraw 4% from his/her portfolio. The withdrawal amount is adjusted
for inflation in subsequent years throughout retirement. This strategy serves as a baseline for
comparison with other strategies.
Floor & Ceiling Strategy:
The floor and ceiling are defined in real terms based upon the initial withdrawal amount. One
recommendation is to set the floor at 10% below the initial withdrawal amount and the ceiling at
25% above the initial withdrawal amount. In any retirement year, if the planned real withdrawal
amount falls below the floor or exceeds the ceiling, the withdrawal amount is kept at the floor or
ceiling respectively.
Modified 4% Strategy:
This rule specifies that the withdrawal amount in any year should be 4% of the portfolio value in
that year. This will guarantee that the retiree's portfolio will never be depleted, but because the
size of the portfolio will change according to returns, the annual withdrawals will also fluctuate.
This strategy adds the protection that if the portfolio loses value in a particular year, the income
in the next year will be cut to 95% of the prior year's level. The 95% level is used even if the
drop in the portfolio would have prescribed a lower withdrawal. This helps to smooth out major
swings in withdrawals. In subsequent years the assets will continue to be withdrawn at 4%.
Decision Rules Strategy:
The Decision Rules Strategy proposed by Guytonand Klinger uses dynamic rules to guide
withdrawals. The initial withdrawal rate from the retirement portfolio is set at 5.3% and later
grows with inflation subject to decision rules. The decision rules are actions a reasonable retiree
might take under various economic conditions. The articles stated here are slightly modified
from the original research to make them more easily implemented. During retirement, if a year's
portfolio return is negative and the withdrawal rate, as adjusted, would be greater than the initial
withdrawal rate, the withdrawal amount is frozen at the prior year's level. To further protect the
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portfolio, if the withdrawal rate exceeds 6.36% in a given year, then that year's withdrawal is
reduced by 10% from the prior year. This rule is not applied after age 85. Inorder to take
advantage of good economic conditions, if the withdrawal rate falls below 4.24%, then the
withdrawal amount is increased 10% over the prior year.
Safe Reset Strategy:
This strategy from Stein and DeMuth recognizes that a retiree can safely withdraw more later in
retirement than earlier because the retirement portfolio needs to last fewer years. In this strategy,
the withdrawal rate is a function of the retiree's age and adjusted only for inflation for five years
before being reset to a new withdrawal rate determined by the expected number of years
remaining in the person's retirement. The prescribed withdrawal rate is 4.7% with 40 years
remaining in retirement, 5% at 35 years, 5.3% at 30 years, 5.6% at 25 years, 6.4% at 20 years,
7.9% at 15 years, and 8.6% with 10 years remaining in retirement. To protect against poor
economic conditions early in retirement, if the portfolio return is negative in any of the first 10
years, the withdrawal rate is set to 4%.
Aggressive Strategy:
For those retirees wanting to spend more early in retirement rather than later, Klinger proposed
an Aggressive Strategy where the withdrawal amount is defined in real terms and decreases over
the retirement period.'' A smooth aggressive strategy decreases real withdrawals each year by a
set amount. For example, with a $ 1 million portfolio a smooth strategy may start with $53,375
in withdrawals, which would decrease $368 annually in real terms for a 20% drop in the annual
real withdrawal over retirement. (The withdrawal amounts scale proportionately to the portfolio
size.) The annual withdrawal amounts defined this way serve as the maximum allowable real
withdrawal amount in each year. To protect the portfolio against losses, if the portfolio has a
negative return in any year, the next year's withdrawal is reduced by 10%. The real withdrawal
amount in any year is not allowed to fall more than 10% below the maximum for that year.
Alternatively, if economic times are good and the withdrawal rate in any year falls below 3.8%,
the next year's withdrawal is increased by 10%.Any increases in withdrawals are capped at the
maximum real income prescribed for that year.
24
CHAPTER 2
LITERATURE REVIEW
25
REVIEW OF LITERATURE
Lori L. Embrey & Jonathan J. Fox (1997) used a sample of singles drawn from 1995 Survey
of Consumer Finances to explore gender differences in the investment decision-making process.
The determinants of some investment decisions were found to differ by gender, but gender did
not appear to be a critical determinant of investment choice. They find that Women are more
likely to hold risky assets if expecting an inheritance, employed and holding higher net worth;
while men invested in risky assets if they are risk seekers, divorced, and college educated.
However, in the sample of singles drawn from the 1995 Survey of Consumer Finances, gender
did not prove to be the critical determinant of investment choice. In fact, there is no difference in
investment patterns in financial assets attributable to gender. Instead, differences in financial
investment decisions between men and women appeared to be more a result of differences in
wealth as measured by net worth and the expectation of an inheritance. The allocation of total
assets toward housing and businesses did appear to be at least partially determined by gender.
Men and women did appear to make investment in housing and business decisions differently.
Women are investing more in houses if they has receive an inheritance, has a short time horizon,
and are widow and they invested more in businesses if they are widow, has not receive an
inheritance, or are wealthy.
Hugo Benítez Silva & Debra S. Dwyer (June, 2002) examined how a wide array of factors
(household and individual level financial, health and other taste shifter characteristics) influence
retirement plans over time and how uncertainty affects the strategies that individuals use to plan
their retirement years. It was found that people with higher net worth plan to retire earlier
probably because they can afford to. People who can afford private health insurance are also
more likely to plan an earlier retirement. Higher earners are postponing retirement. People who
report themselves in poor health plan to retire later. Using panel data models the role of health
and economic factors on retirement planning using the Health and Retirement Study (HRS) was
examined. Health and socio-economic factors are all factors that influence the formation of
expectations, with health explaining more of the variation. Rationality of plans for retirement
controlling for sample selection was examined. After controlling for sample selection, reporting
biases, and unobserved heterogeneity it was found that plans for retirement followed the random
26
walk hypothesis and pass tests of weak and strong rationality. Then the effects of new
information on plans were examined and the result was that new information contributes little to
changes in plans. This leads us to conclude that on average people correctly form expectations
over uncertain events when planning for retirement.
Joy M. Jacobs-Lawson, Douglas A. Hershey (2005) done a study to explore the extent to
which individuals’ knowledge of retirement planning, future time perspective, and financial risk
tolerance influence retirement saving practices. A total of 270 young working adults participated
in the study. Regression analyses reveal that each of the three variables is predictive of saving
practices, and they interact with one another as well. For those with a short time perspective who
were high in knowledge, the relationship between risk tolerance and saving is only marginally
significant. For those who were both low in time perspective and knowledge, the relationship
between risk tolerance and saving is near zero. Failing to look to the future ensures a minimal
impact of risk tolerance on saving, almost irrespective of how much one knows about financial
planning. Among individuals, high in future orientation and knowledge, risk tolerance has a
relatively small, influence on saving practices. For individuals high in future orientation and low
in knowledge, risk tolerance exerts a relatively strong effect on savings. From a theoretical
perspective, the finding from this study is that future time perspective and risk tolerance interact
with one another to influence retirement saving. From an applied perspective, the findings
suggest that counseling and intervention efforts aimed at promoting retirement saving should
differentially target individuals on the basis of these three psychological dimensions.
David A. Wise (April 2006) studied the shift and explored the conventional wisdom that this
shift increases risk for retirees and will result in lower accumulation of retirement assets. In
particular, it focuses on personal retirement accounts and considers the options available for
retirees to contain risk and assess the likely outcomes over alternative options, including life
cycle allocation. He came with the result that personal retirement accounts better than the
defined benefit pensions by using life cycle strategy.
Annamaria Lusardi & Olivia S. Mitchell (October 2007) did a research that talk about
financial knowledge during workers’ prime earning years when they are making key financial
decisions, and it offers detailed financial literacy and retirement planning questions, permitting a
finer assessment of respondents’ financial literacy than heretofore feasible. Financial literacy is a
27
key determinant of retirement planning. They also found that respondent literacy is higher when
they were exposed to economics in school and to company-based financial education programs.
They also found that education, income, and age are correlated with but do not adequately
capture the full flavor of the financial literacy measures developed here. Second, the fact that
they found more financially literate adults are more likely to plan for retirement complements
other analysts who have sought to link financial sophistication and decision making. For
instance, research showed that financially unsophisticated households tend to avoid the stock
market. The financially unsophisticated are also less likely to refinance their mortgage in a
propitious environment, and they select less advantageous mortgages (Moore 2003). People who
cannot correctly calculate interest rates given a stream of payments, borrow more and
accumulate less wealth. By this their results show that the financially illiterate do not plan for
retirement either.
Anup K. Basu & Michael E. Drew (2007) compared the lifecycle asset allocation strategy with
the contrarian strategy by investors to invest. According to this paper no doubt the strategy used
by employees is lifecycle strategy but it is the contrarian strategy that increases the accumulated
value more. Currently employees invest by lifecycle asset allocation funds. They invest
aggressively to risky asset classes when they are young and gradually switch to more
conservative asset classes as they grow older and approach retirement. This approach focuses on
maximizing growth of the accumulation fund in the initial years and preserving its value in the
later years. Due to this portfolio size effect, we find the terminal value of accumulation in
retirement account to be critically dependent on the asset allocation strategy adopted by the
participant in later years.
Contrarian strategies which switch to risky stocks from conservative assets produce far superior
wealth outcomes relative to conventional lifecycle strategies. This demonstrates that the size of
the portfolio at different stages of the lifecycle exerts substantial influence on the investment
outcomes and therefore should be carefully considered while making asset allocation decisions.
Lifecycle asset allocation strategies focus on two objectives: maximizing growth in the initial
years of investing and reducing volatility of returns in the later years. Our findings suggest that
the bulk of the growth value of accumulated wealth actually takes place in the later years. The
first objective, therefore, has little relevance to the overarching investment goal of augmenting
28
the terminal value of plan assets in. A strategy of switching to less volatile assets a few years
ahead of retirement can only be rationalized if the employee participant has already accumulated
wealth well in excess of their accumulation target a few years before retirement.
Jeffrey R. Brown (October 2007) studied the role of annuities in retirement planning that are
explaining the basic theory underlying the individual welfare gains available from annuitizing
resources in retirement. It then contrasts these findings with the empirical findings that so few
consumers behave in a manner that is consistent with them placing a high value on annuities.
After reviewing the strengths and weaknesses of the large literature that seeks to reconcile these
findings through richer extensions of the basic model, this paper turns to a somewhat more
speculative discussion of potential behavioral stories that may be limiting demand. Overall, the
paper argues that while further extensions to the rational consumer model of annuity demand are
useful for helping to clarify under what conditions annuitization is welfare-enhancing, at least
part of the answer to why consumers are so reluctant to annuitize will likely be found through a
more rigorous study of the various psychological biases that individuals bring to the annuity
decision.
According to this article, we have a much greater understanding of how we think consumer
ought to optimally behave and of how they actually do behave with respect to annuity decisions.
Until we have a better understanding of why consumers act as if they place so little value on
annuitization, it will remain unclear whether individual and social welfare will be enhanced by
policies that promote annuitization, or even which policies would be successful at doing so. As
such, the economics and psychology of the annuitization decision remains a very fruitful area for
additional research.
Steve Vernon (March 2009) talked about three resources, called the "three-legged stool" that
supports retirement may not be sufficient to support the traditional retirement for many people:
Personal saving is at an all-time low.
Employers have been reducing or eliminating traditional defined-benefit and retiree medical
plans.
Social Security has long-term financial difficulties, and some experts predict that benefit
cutbacks are likely.
29
The middle class will need to change their goals from the traditional retirement, defined as "not
working," to a "rest-of-life" that is fulfilling, healthy, and financially secure. To achieve these
goals, working Americans will need to adopt lifestyle solutions that complement financial
solutions. Financial professionals can help their clients make the most effective choices
regarding financial solutions. Analyzing the realistic limits of financial solutions helps identify
when non-financial solutions are needed.
To summarize the themes in this article, financial professionals can play a critical role in
helping those in the middle class prepare for their retirement years. Financial professionals can
help analyze the realistic limits of traditional financial solutions and discuss holistic strategies
that integrate financial and lifestyle solutions, because the challenges may be more behavioral
than technical.
Christine C. Marks (October 2009) conducted a study to better understand how well American
workers felt their retirement savings had weathered the economic storm, and also to look ahead
and gauge interest in more innovative workplace plans that hold the promise of better outcomes.
The Four Pillars of Retirement represent the foundation of retirement security today, from Social
Security to the choices made in retirement. The four pillars are social security, employment
based plan personal savings and retirement choices. The majority of employees saw the benefits
of all five automatic features: enrollment, initial contribution rate, contribution escalation, asset
allocation, and guaranteed retirement income. Among more experienced employees who spent
most of their employment careers without the benefits of these automatic features, 59% feel they
would have been better off today if their employers had used the entire package of auto-pilot
features. Furthermore, two-thirds would recommend the auto-pilot approach to younger workers.
W Rudman (November 2009) investigated optimal asset allocation as a means of minimizing
the investment risk, drawdown risk and longevity risk associated with an investment linked
living annuity. The three risk elements were tested for various categories of retirees investing the
full retirement savings amount in a living annuity. In order to reach the aim and objectives of the
study, a literature overview of the current South African retirement environment was classified
the South African public according to savings habits, the propensity to save and knowledge on
the financial industry. The second part of the literature review highlighted key considerations
30
with regards to an optimal asset allocation. The key considerations included the risk versus
return relationships for retirees, various unit trust sectors and portfolios within the South African
financial market, the investment horizon also stated as the life expectancy of a retiree and
withdrawal strategies applied by investors or retirees. The study continued with the empirical
study modeling the pre- and post-retirement phases respectively.
The conclusion was made on the pre-retirement phase and post-retirement phase. The pre-
retirement phase provided insights into the amounts available for retirement. Three factors were
used as variables in modeling the pre-retirement phase. These factors included the rate at which
contributions were made towards an approved retirement savings scheme, the investment term
and the investment growth rate received throughout the savings term. The post-retirement phase
tested the sustainability of income withdrawals at various withdrawal rates from a range of asset
allocations. In order to minimize the risks, a retiree investing in a living annuity need to consider
the following factors: available retirement capital, life expectancy, drawdown rate as stated by a
net replacement ratio, investment capital growth, risk versus return relationship and the
allocation of funds towards different asset classes. The assumptions used in the study such as
sector growth rates, inflation, saving terms and forecasting models can be considered a
limitation.
Anup Basu, Alistair Byrnes & Michel E. Drew (2009) compared the traditional lifecycle
strategy with dynamic lifecycle strategy. According to their results the chance of the dynamic
strategy underperforming the lifecycle strategy at the end of such a long horizon is small (though
not insignificant). Not only does the dynamic strategy produce superior terminal wealth
outcomes compared to the lifecycle strategy in a vast majority (about 75 -80%) of cases, it
appears to have a fair chance of outperforming a 100% equity strategy.
Hoe Kock & Jee Yoong (July 2010) examined expected retirement age cohorts as a main
determinant to financial planning preparation. A total of 600 questionnaires were distributed with
a 55% return rate. Five hypotheses were analyzed using hierarchical and stepwise regression
analysis. Results revealed that expected retirement age cohort variables made significant
contribution to financial planning preparation as well as personal orientation towards retirement
planning. The results indicate that current financial resources do have an impact on positive
31
orientation towards retirement planning particularly for those in the younger age group. The
younger age cohorts usually have very little savings so they may be planning to save or increase
their disposable income for a better standard of living in later years. However, it is not very clear
if their intention to save more is purely to improve their standard of living during mid life or
saving for their retirement. Further research can be carried out for this life cycle path looking at
their propensity to save and the sort of investment strategies applied.
Expected retirement age do affect personal orientation towards retirement planning with the
confidence level making a significant impact. On the other hand, no significant effect was found
between expected retirement age cohort and current financial resources but older age cohorts
were relatively more significant predictors. The financial planning model derived from the life-
cycle theories showed positive influences from the personal demographics such as work status,
education, household composition, and income variables as life-cycle factors affecting the
expectation and planning outcomes. This is also talks about the points of financial literacy, and
government support which we discussed in first two articles.
Towers Watson (October 2010) showed that even in a somewhat brighter economic climate,
employees continue to be worry about their long term retirement planning and they are
postponing their retirement, spending less, saving more and are willing to pay guaranteed
benefits in the future. These challenges will have a significant impact on employees. Employees
are taking action to shore up their balance sheet. Increasing number of older employees are
saving more compared with the overall employee group. They are also beginning to rethink how
far those savings will take them. Compare with the two years ago, fewer employees thinks they
will need to save much more in the future to achieve a comfortable level of income in their
retirement. Employees with the DC plans recognize a need to save more. Similarly, they have
started to more contribution for their plans. They expect to continue this contribution over the
next 12 months. Less people are comfortable with their retirement plan and their own decision.
In actually they are confused. The effect of the economic crisis on employee attitudes toward is
risk is significant and long lasting. Today’s retirement and health care affordability challenges
could be creating group of hidden pensioners, employee who want to retire but unable to do so.
This could lead to a host workforce of management issues as these productive employees remain
on company payrolls. Ultimately, these changes in employee attitude toward retirement could
32
have long term implication for workforce planning, talent management, attraction, retention and
engagement.
By Brendan McFarland & Erika Kummernuss (2010) told about the how employers are changing
their strategy like they shift from traditional defined benefit (DB) to defined contribution (DC).
According to which employees should also change their strategy, it also talks about some
products by which they can change their strategy. Only 38% of Fortune 1000 companies
maintain a DB plan and have no frozen plans — a stark decline from 2004, when 59% of Fortune
1000 companies had not frozen a DB plan. The shift from traditional DB plans to DC plans has
redirected a share of employer funding away from older workers, thereby enabling younger
workers to make more significant contributions toward a financially secure retirement.
Nonetheless, events such as the 2008 stock market crash highlight some potentially problematic
effects on workforce patterns created by DC-only platforms. Many DC plan accounts suffered
major losses during the recent financial crisis, forcing some older workers to postpone retirement
to recover from market losses and rebuild their retirement nest eggs. This shows that a sudden
economic slowdown effect all the investment of the employee made with employer from their
salary. DB plans provide greater reliability and security for workers, and offer sponsors unique
opportunities for long term financial efficiency and workforce management.
Paul Myeza & Dawie De Villiers (2010) did an annual Sanlam survey of SA retirement fund
industry and members reveals:
60% of pensioners had insufficient savings levels, leading to 64% of these cutting back
on expenses and 31% had to work to supplement their income
80% of retirement funds did not provide post-retirement medical aid
50% of pensioners face increasing responsibilities such as dependants and 29% have debt
Gross investment returns of retirement funds almost double at 11.4%.
According to the survey’s findings, this article suggest that;
Retirement contributions still well below recommended average, despite warning signs
from pensioners
33
Member misconceptions highlight increasing need for education and responsibility
Post-retirement healthcare costs underestimated members actually prefer to be compelled
to save.
Member communication improves if investment returns bounce back.
Towers Watson (2010) Life-cycle investment strategies were designed some years ago in the
United States and United Kingdom to ensure that designed contribution plan members who do
not make their own investment decisions have a reasonably appropriate risk/return profile over
their saving life. Today, life-cycle investment strategies are quickly becoming a well-established
part of the defined contribution (DC) landscape in Canada as well 24% of DC plans with a
default option utilize a life-cycle strategy for this purpose, and another 14% are considering
changing the default option to a life-cycle strategy over the next 18 months. Traditional life-
cycle investment strategies attempt to determine the most appropriate asset mix for DC plan
members to balance their risk and return profiles based on the number of years the members have
until retirement. Younger members with longer to retirement tend to invest more in growth
assets, typically equities, while more mature members with fewer years to retirement tend to
gradually transfer their assets to protection seeking investments.
Life-cycle investment strategies remain a good automated, risk-controlled asset allocation
strategy for DC plan members’ portfolios. Both the theory and evidence suggest it is a good way
of ensuring an appropriate balance of risk and return. Implementation, however, is crucial, and as
DC plans grow to significant importance, some improvements in this area are becoming
necessary. They suggest it is desirable for some plans to place more emphasis on the middle
group, the guided selectors, when designing the plan and the engagement strategy. This group of
members would benefit from better DC design that enables them to consider their own
circumstances more when structuring their DC assets.
William Klinger (January 2011) examined eight different strategies proposed by researchers
and pundits by simulating and evaluating the strategies according to a common set of criteria. In
order to address the important concern and criterion of the trade-off between total real retirement
income and real legacy, the strategies are also simulated to show the effect of purchasing
immediate annuities with different percentage of the retirement portfolio. An approach is
34
presented to help guide a retiree or planner in selecting the ‘best’ strategy for the retiree. The
strategies are 4% Rule, Floor & ceiling strategy, Modified 4% strategy, Decision rules strategy,
Safe Reset Strategy, Aggressive Strategy, Half-Annuity strategy, and Delayed-Annuity Strategy.
The research uses Monte Carlo simulation to test the retirement strategies. The first observation
in the conclusion that can be made is that simulations of the retirement strategies show that all
the strategies can produce high success rates. Second, the retirement income profiles produced
by the strategies show marked differences. Third, the research shows that the strategies can be
combined with annuities purchased at retirement to give retirees control over their total
retirement income and the legacy they leave.
Pragya Mishra (June 2011) did a research in which she focused on how various retirement
benefit scheme available can help protect against post retirement risks and financial insecurities,
particularly in light of the current uncertain economic and financial global environment. Of
particular interest was the question whether and how legislative framework can be better used or
designed to meet and manage retirement risks. This research showed that the pension market is
far from exhausted. Indeed more workers than ever before seek sensible pension designs to help
them save during the accumulation phase, and also to help them manage pension payouts in
retirement. According to this research paper 90% per cent of India’s total working population is
not covered for post retirement life. The Indian Parliament has evolved a comprehensive
legislative framework to effectuate proper implementation of retirement benefit plans.
The major Acts and Schemes which deal with retirement benefit issues are as under:
The Pension Act,1871
The Employees' Provident Funds and Miscellaneous Provisions Act,1952
Payment of Gratuity Act, 1972
Voluntary Retirement Scheme
After reading all these schemes we come to know that if a person is aware about it then he/she
can use that scheme to make good investment strategy for retirement planning. But this paper did
not talk about how to better protect retiree minimum pension guarantees, ultimately the core-
concern of retirement plan designers.
George Burns (September 2011) explored that how much challenges people face in planning of
income nearest retirement age. The research simulates the challenge of investing and planning
35
for a secure retirement is a growing concern or not. How is there a greater awareness and interest
in guaranteed retirement income products, these products are more likely to keep in the stock
market, is Investors recognize significant challenges in planning retirement income, Investors
want help with retirement income decisions and even as they become more self-reliant. More
people were reporting that retirement concern investments are reliable for life. They believe that
this is a trade-off for their life. Most of people were positive for retirement stage and, also for
growth and concern for asset. They were also positive for risk concern prospective. They found
high bullish. Investors should consider the contract and the underlying portfolios’ investment
objectives, risks, charges and expenses carefully before investing. This and other important
information is contained in the prospectus, which can be obtained from your financial
professional. Please read the prospectus carefully before investing. A variable annuity is a long-
term investment designed for retirement purposes. Investment returns and the principal value of
an investment will fluctuate so that an investor’s units, when redeemed, may be worth more or
less than the original investment. Withdrawals or surrenders may be subject to contingent
deferred sales charges. Annuity contracts contain exclusions, limitations, reductions of benefits
and terms for keeping them in force. Your licensed financial professional can provide you with
complete details. Optional benefits, available for an additional fee, have certain investment,
holding period, liquidity, and withdrawal limitations and restrictions. All guarantees, including
optional benefits, are backed by the claims-paying ability of the issuing company and do not
apply to the underlying investment options.
Study of Americans (2011) explored the gauge the financial and emotional impact of the 2008-
09 market crisis and access Americans outlook for their near-term and long-term financial
prospects, which includes the role of financial products and trust in the financial service industry.
It explores that the financial crisis and the ensuing recession created significant financial and
retirement challenge for Americans. Two-thirds agree that the events of the past few years were
different than, anything they have ever experienced. Most investors believe that the investments
they have today are not earning enough to make up for the losses they’ve experienced over the
past few years. Investors are being more thoughtful and selective about the financial services
firms they will choose. Exploration of new products will be limited if investors don’t know
which firms or advisors they can trust. Discerning the good from the bad presents a challenge for
36
many investors. Americans are calling for a better way to protect and secure their financial
futures. Winning their trust is the challenge.
Financial services firms must make a concerted effort to win trust and inspire confidence if they
are to effectively help. Americans achieve financial and for retirement security.
Wade D. Pfau(2011) provided a simple scenario to illustrate the principle of the “safe savings
rate.” Introducing more realistic factors could either increase or decrease required in saving rate.
According to this The savings rate does not need to be fixed, as individuals can make projections
for their future income, unique consumption needs such as raising children or paying for a home,
and retirement expenditures. Allowing for consumption smoothing needs, these projections can
be calibrated with a variable savings rate needed to fit the planned pattern of lifetime savings. It
should use actual historical return for better study of retirement planning.
37
CHAPTER 3
PRESENT WORK
38
3.1 NEED AND SCOPE OF STUDY
Private sector employees don’t get any retirement benefit from the government. So in order to
have a secure and independent life after retirement they need to plan for it. There is the need to
invest the money wisely so as to have an enough amount at retirement to spend the after
retirement life happily. There is the scope of the study for financial planners to know what the
investors are thinking and how they are behaving. It is a need to know what the various factors
are that are affecting the decision making in choosing the strategy for retirement planning.
3.2 OBJECTIVES
To know the various strategies that the private sector employees use to invest for
retirement planning.
To know the various factors those are affecting the decision regarding the choice of
strategy.
To know the awareness of employees regarding various product of retirement.
39
3.3 RESEARCH METHODOLOGY
The Study:
The report would be an exploratory one and as such will involve the collection of both primary
and secondary data. It would be exploratory in nature and would provide insight about the
various factors affecting the decision making in choosing the strategy regarding retirement
planning. It will help to identify and define the key research variables.
Sample Design:
1. Population:
The population for this research will include faculty and other staff members of lovely
professional university.
2. Sampling Elements:
Sampling elements consist of individual respondents.
3. Sampling Techniques:
In this research non- random sampling technique will be used for collecting data and
under that it will be convenience sampling.
4. Sample Size:
Sample size will be of 200 individual respondents.
Data Collection:
Primary data will be collected by means of questionnaires
Secondary data was extracted from books such as (Naval Bajpai), Journal of
contemporary research in business and by browsing internet, websites like:
www.ebescohost.com
www.googlescholar.com
www.essayrelief.com
www.ssrn.com
www.proquest.com
www.collegeboard.com
40
3.4 EXPECTED OUTCOME OF STUDY
Private sector employees use different strategies in different stages of life.
Age is an important factor that is influencing the decision regarding the selection of
strategy.
Private sector employees use aggressive strategy in early life and conservative strategy in
late age.
Knowledge about investment, risk tolerance, marital status are some important factors
that influence decision towards strategy selection.
41
CHAPTER 4
CONCLUSION
Till now we find that private sector employees get the minimum retirement plans or benefits
from their employer which is approximate 335% less than a government employer. There are
various products available in the market to better plan a retirement but for that a person should
have proper or full knowledge about the product in which he /she wants to invest. By reading the
various research papers and journals we find that life cycle strategy have the more impact on the
retirement plan than the other strategies, which further divided in two major strategies,
aggressive and conservative but according to us whenever a person plan their retirement should
go with modern/dynamic life cycle strategy because it gives more elaborative data.
There are four pillars called social security, employment based plan personal savings and
retirement choices are available for better retirement plan. The strategies also differ on the basis
of gender also, in one article they show women are invested more in real estate if they got in
heritance. Financial literacy is also a major point in deciding strategies which almost discussed in
all papers related to retirement planning.
42
CHAPTER 5
REFERENCES
I. Journals/Research paper:
1. Annamaria Lusardi (Dartmouth College) & Olivia S. Mitchell (University of
Pennsylvania), (October 2007), “Financial Literacy and Retirement Planning: New
Evidence from the Rand American Life Panel”
2. Anup K. Basu & Michael E. Drew (2007), “Portfolio Size and Lifecycle Asset Allocation
in Pension Funds”
3. Anup Basu, Alistair Byrnes and Michael E. Drew (2009), “Dynamic Lifecycle Strategies
for Target Date Retirement Funds”, Griffith Business School, discussion paper, Finance
4. Brendan McFarland and Erika Kummernuss (2010), “Pension Freezes Continue Among
Fortune 1000 Companies in 2010”, Towers Watson 901 N. Glebe Rd. Arlington
5. Christine C. Marks (October 2009), “The New Economic Reality And The Workplace
Retirement Plan”, Prudential’s Sixth Annual Workplace Report On Retirement Planning
6. David A. Wise (2006), “Financing Retirement: The Private Sector(The shift from defined
benefit pension to personal retirement accounts is likely to benefit retirees)”, Business
Economic
7. George Burns (September 2011), “Changing Attitudes About Retirement Income”,
Journey well, arrive better-Redefining DC investment
43
8. Hoe Kock, TAN and Jee Yoong FOLK (July 2010), “Expected retirement age: A
determinant of financial planning preparation”, African Journal of Business Management,
Vol. 5(22), pp. 9370-9384
9. Hugo Benítez Silva and Debra S. Dwyer (June, 2002), “Retirement Expectations
Formation Using the Health and Retirement Study”
10. Jeffrey R. Brown (October 2007), “ Rational and Behavioral Perspective on the Role of
Annuities in Retirement Planning”, National Bureau Of Economic Research Working
Paper No. 13537
11. Joy M. Jacobs-Lawson & Douglas A. Hershey (2005), “Influence of future time
perspective, Financial knowledge and financial risk tolerance on retirement saving
behaviors”, Financial Services Review vol.14, pp. 331–344
12. Lori L. Embrey & Jonathan J. Fox(1997), “Gender Differences In The Investment
Decision-Making Process”, Financial Counseling and Planning, Vol. 8
13. Pragya Mishra, Hidayatullah National law University, Raipur (Chattisgarh), (June 2011),
“Analysis of Retirement benefits and the Legislative framework in India” Quest
International Multidisciplinary Research Journal, Vol-1, Issue-1
14. Steve Vernon (March 2009), “Retirement Planning for the Middle Class: Holistic
Strategies will be Essential”, FSA, Journal of Financial Service Professionals
15. Study of Americans’ Current Financial Perspectives(2011), “Meeting Investment and
Retirement Challenges”
16. Towers Watson (2010), “The Life Cycle Strategy”, Canadian Capital Accumulation Plan
Survey
44
17. Towers Watson (October 2010), “Retirement Attitude: Part 2-Employee Attitudes
Toward Risk”
18. Wade D. Pfau, Ph.D. (2011), “Safe Savings Rates: A New Approach to Retirement
Planning over the Life Cycle”, May 2011 Journal of financial planning
19. William Klinger (January 2011), “In Search of the “Best” Retirement Strategy”, Journal
of Financial Service Professionals, January 2011
20. W Rudman (November 2009), “Post-Retirement Planning: Asset Allocation” North-West
University, Potchefstroom Campus
II. Websites:
1. www.ebescohost.com
2. www.googlescholar.com
3. www.essayrelief.com
4. www.ssrn.com
5. www.proquest.com
6. www.collegeboard.com
7. www.towerswatson.com
45
46
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