En­sure you at­tain fi­nan­cial in­de­pen­dence in or­der to re­tire com­fort­ably

Weekend Argus (Saturday Edition) - - MEDIA& MARKETING - COM­MER­CIAL FEA­TURES WRITER

RE­TIRE­MENT plan­ning, in a fi­nan­cial con­text, refers to the al­lo­ca­tion of fi­nances for re­tire­ment. This nor­mally means the set­ting aside of funds in or­der to ob­tain a steady in­come at re­tire­ment.

The goal of re­tire­ment plan­ning is to achieve fi­nan­cial in­de­pen­dence, so that the need to be gain­fully em­ployed is op­tional rather than a ne­ces­sity.

The process of re­tire­ment plan­ning aims to:

As­sess readi­ness-to-re­tire given a de­sired re­tire­ment age and life­style, that is, whether one has enough money to re­tire;

Iden­tify ac­tions to im­prove readi­ness-to-re­tire;

Ac­quire fi­nan­cial plan­ning knowl­edge; and

En­cour­age sav­ing prac­tices. In re­cent years, pro­duc­ers such as a fi­nan­cial plan­ner or fi­nan­cial ad­viser have been avail­able to help clients de­velop re­tire­ment plans, where com­pen­sa­tion is ei­ther fee-based or com­mis­sioned con­tin­gent on prod­uct sale.

Such ar­range­ment is some­times viewed as con­flict­ing to a con­sumer’s in­ter­est to have ad­vice ren­dered with­out bias or at cost that jus­ti­fies value.

Con­sumers can now elect a do it your­self (DIY) ap­proach, given the ad­vent of a large, ever-grow­ing body of re­sources.

For ex­am­ple, re­tire­ment web-tools in the form of sim­ple cal­cu­la­tor, math­e­mat­i­cal model or de­ci­sion sup- port sys­tem have ap­peared with greater fre­quency.

A web- based tool that al­lows client to fully plan, with­out hu­man in­ter­ven­tion, might be con­sid­ered a pro­ducer.

A key mo­ti­va­tion be­yond the DIY trend is based on many of the same ar­gu­ments of a lean man­u­fac­tur­ing process, a con­struc­tive al­ter­ation of the re­la­tion­ship be­tween pro­ducer and con­sumer.

Re­tire­ment fi­nances touch upon a mot­ley of dis­tinct sub­ject ar­eas or fi­nan­cial do­mains of client im­por- tance, in­clud­ing in­vest­ments (that is stocks, bonds, mu­tual funds); real es­tate; debt; taxes; cash flow ( in­come and ex­pense) anal­y­sis; in­sur­ance; de­fined ben­e­fits ( for ex­am­ple so­cial se­cu­rity, tra­di­tional pen­sions).

From an an­a­lytic per­spec­tive, each do­main can be for­mally char­ac­terised and mod­elled us­ing a dif­fer­ent class (com­puter sci­ence) rep­re­sen­ta­tion, as de­fined by a do­main’s unique set of at­tributes and be­hav­iours.

Do­main mod­els re­quire def­i­ni­tion only at a level of ab­strac­tion nec­es­sary for de­ci­sion anal­y­sis.

Since plan­ning is about the fu­ture, do­mains need to ex­tend be­yond cur­rent state de­scrip­tion and ad­dress un­cer­tainty, volatil­ity, change dy­nam­ics (that is con­stancy or de­ter­min­ism is not as­sumed).

To­gether, these fac­tors raise sig­nif­i­cant chal­lenges to any cur­rent pro­ducer claim of model pre­dictabil­ity or cer­tainty. Some might even adopt fa­tal­ism – that a full scope of client is­sues, non­fi­nan­cial in­cluded, ren­der the en­tire prob­lem in­de­ter­mi­nate, un­solv­able, and mean­ing­less.

The Monte Carlo method is a per­haps the most com­mon form of a math­e­mat­i­cal model that is ap­plied to pre­dict long- term in­vest­ment be­hav­iour for a client’s re­tire­ment plan­ning. Its use helps to iden­tify ad­e­quacy of a client’s in­vest­ment to at­tain re­tire­ment readi­ness and to clar­ify strate­gic choices and ac­tions. Yet, the in­vest­ment do­main is only fi­nan­cial do­main and there­fore is in­com­plete.

De­pend­ing on client con­text and de­spite pop­u­lar press, the in­vest­ment do­main may have lit­tle im­por­tance in re­la­tion to a client’s other do­mains – for ex­am­ple, a client who is pre­dis­posed to the use of real es­tate as pri­mary source of re­tire­ment fund­ing.

Con­tem­po­rary re­tire­ment plan­ning mod­els have yet to be val­i­dated in the sense that the mod­els pur­port to project a fu­ture that has yet to man­i­fest it­self. The crit­i­cism with con­tem­po­rary mod­els are some of the same levied against Neo­clas­si­cal economics.

The critic ar­gues that con­tem­po­rary mod­els may only have proven va­lid­ity ret­ro­spec­tively, whereas it is the in­de­ter­mi­nate fu­ture that needs so­lu­tion.

A more mod­er­ate school be­lieves that re­tire­ment plan­ning meth­ods must fur­ther evolve by adopt­ing a more ro­bust and in­te­grated set of tools from the field of com­plex­ity sci­ence.

Re­cent re­search has ex­plored the ef­fects of the elim­i­na­tion of cap­i­tal in­come taxes on sav­ing- for- re­tire­ment op­por­tu­ni­ties and its im­pact on govern­ment debt.

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