Category: Retirement

Importance of a Dream Job

Young people should think about their futures before they choose their majors. I believe that I am fortunate to have chosen business as my main field of study. It helps to unite various ethical issues, leadership skills, and financial items. A successful leader has to think about many things at the same time. Self-regulation, empathy, and social skills are the competencies for a leader’s consideration (Goleman 78). It is not enough to know what job should be chosen. It is important to understand the worth of a dream job, develop a detailed plan to obtain it, find enough motivators, and be sure that the choices made promote personal happiness and satisfaction. (Colby et al. 51).

After graduation, I hope to succeed in the finance and gain the required portion of experience in the U.S. to come back home and join the family business started by my grandfather. I think that an investment bank or some private equity could be chosen to gain a better understanding of cultural principles, the peculiarities of the work in teams, and the concerns that could be developed between employees. Still, to be a part of a team and to work as a part of the already established business should not be defined as my final goal. These are simply the means to achieve the dream job. I want to be educated and experienced enough to establish a company. To be a leader of my own company connected with the family business is my dream job.

My motivation is based on my ability to weigh different people’s experiences and consider my personal dreams. The experience of Black Irving, CEO of GoDaddy Company, shows that people may have no ideas about their future careers (Bryant). Sometimes it is enough to work with good people and find it interesting to organize people in regards to a personal tone. Besides, I am motivated by such concepts as curiosity, love of learning, and using new ideas in routine affairs (Crossan et al. 287). In the UAE, many business people develop their projects on foreign experiences and knowledge. I want to be ready for the challenges and stay competitive. Therefore, I believe that my practice in the USA and my devotion to our traditions and recognition of family values should help me create a strong company with clearly identified ideas and goals.

My Best Retirement Scenario

The success of my future career is hard to predict. Still, it is always possible and even helpful to dream of effective leadership. Leadership is the process of guiding people and promoting the importance of changes in the workplace. Being a transformational leader is my goal. I would like to underline the importance of change and innovation in the UAE family business because I believe that this field could be improved considerably regarding the current experiences of different nations. In 40 or 50 years, I would like to listen to one of my followers giving a speech about my retirement and my personal contributions to the business’s development.

“This person has proved that it is necessary to have a dream. It is not enough to identify it and make people aware of this dream’s existence. It is more important to understand how to obtain the dream and make other people believe in it. From an early age, this person demonstrated a number of qualities that were inherent to true leaders. He decided to go to an American university and obtain a high level of knowledge. It was unnecessary to motivate him because he had enough strength and dreams to take all steps independently.

“His devotion to his family and intentions to make something useful for his country made him strong and goal-oriented. Though some people thought that the existing difference between American and Arab cultures could not result in something successful, this person showed that friendship between nations was possible. Relying on the experience of his grandfather as the main role model in business, this leader combined American persistence and Arab innovations and created a spirit that could inspire people and solve ethical dilemmas that remain common in the workplace. Ethical problems could mislead and intimidate. They could gain different forms and lead to unpredictable outcomes. The development of trustful relations and communication are the best solutions, and our leader showed how those steps should be taken.

“A family business is not an easy task. This leader came to the country to break some rules and help people not to divide friendship and business but use it to succeed. There are many stories of certain problems that may occur when a leader has to punish or fire a worker he/she has no tight relations with. However, when it is time to solve a problem with a friend or family member, a number of questions and concerns occur. The example demonstrated by this person inspires millions of people because he made something impossible: He combined friendship, finance, and business success over many years. He proved that people had the right to make friends in the workplace and promote trustful cooperation, sincere explanations, and fair corrections. At the same time, this leader taught us how to control emotions and how to use them for good only. Emotions and business could co-exist. This has been proven by our retiring leader, who will never be forgotten.”

Such a speech as this would show that my achievements and contributions were recognized by others, my ideas helped people, and my attitudes supported the development of the business in the UAE.

Personal Experience to Help Comprehend “What’s the Matter with David?”

The scenario introduces David, a smart and funny person, who was a good student at Stern and then became a good worker in the company after graduation. Because of the close relationship that developed between David and me during his education, I was not able to define several slights, although still evident, shortages in his work. I remembered the words of one of the greatest philosophers that “it is unlawful either to weigh true morality against conflicting expedience, or common morality, which is cultivated by those who wish to be considered good men, against what is profitable” (Cicero 273). Therefore, I came to the conclusion that a certain change should be offered in order to avoid any unpleasant results, to improve the work of my team, and to avoid judgments. The last annual review process that took place showed that some members of the team were not good workers. My manager offered me the idea of pruning a tree so it could grow better. The hint was clear enough, and I had to make a decision about David. I understood that my friend might need to be let go. Still, it was necessary to avoid judgments and wrong considerations in the matter.

After the meeting, David offered me a quick drink that night. In order to not appear suspicious, I could not refuse his suggestion. At the same time, I also wanted to notify my friend about possible changes. Therefore, I accepted his offer of a drink. However, I did not spend much time at the bar and explained that my hurry was because of personal issues. The next day I informed all my team about the possibility of additional checks and the possible professional evaluation. I offered to unite as a team, to remove all personal and professional shortages, and to try to demonstrate the best qualities. Lateness, work evasion, and gossip were not allowed. Those rules should be followed by all members, including me. As a leader, I had to pass this check as well. When David asked about the conditions of the assessment after work, I underlined that I was not aware of the details but that assessment was directed to check all members of a team. The only thing that I could do as a leader and as his friend was to become a good example to follow. I focused on the work, tried to support all members in the same way, and organized special meetings to discuss the things that mattered to the team. I explained the importance of labor division and the worth of such issues as dexterity and justice (Smith 8). I did not want to underline the differences in the relations, but I had to explain to my friend David that all employees had to work hard to demonstrate their abilities and continue working in the company.

As soon as I made a conscious effort to become a good example for all members of my team, David included, I observed a number of changes. It turned out that some other members of the team were also good friends and tried to support each other. In addition, all employees found my leadership style to be rather attractive and effective. It turned out to be my mistake that I did not notice the full potential of my team earlier but rather focused on my friendship with David. The result of this discovery was unpredictable indeed. My team became a team of friends and experts. We got to know the weak and strong sides of each person and helped to identify the best means to achieve good results. My friendship with one person on the team was no longer enough. It was necessary to befriend all members of the team to achieve success. Therefore, the one thing I would do differently with the benefit of experience would be to pay more attention to all members of my team. Finally, when the time to meet with the manager came, I introduced the results of the performance of all my team members and proved that each person had both strong and weak aspects. If some mistakes occurred in the team, a leader should take responsibility for them. I was ready to take that responsibility, and I was justified because my team was one of the best in the company.

Works Cited

Bryant, Adam. “Blake Irving of GoDaddy: At the Top, You Get to Set the Tone.”The New York Times, 2016, Web.

Cicero, Marcus Tullius. De Officiis. Translated by Walter Miller, The Macmillan Co, 2014.

Colby, Anne, Thomas Ehrlich, William M. Sullivan, and Jonathan R. Dolle. Rethinking Undergraduate Business Education: Liberal Learning for the Profession. John Wiley & Sons, 2011.

Crossan, Mary, Daina Mazutis, Gerard Seijts, and Jeffrey Gandz. “Developing Leadership Character in Business Programs.” Academy of Management Learning & Education, vol. 12, no. 2, 2013, pp. 285-305.

Goleman, Daniel. “Leadership That Gets Results.” Harvard Business Review, vol. 78, no. 2, 2000, pp. 78-90.

Smith, Adam. The Inquiry into the Nature and Causes of the Wealth of Nations. 1776. Web.

Introduction

In their article, Agarwal, Pan, and Qian test the way retirement affects consumption to find a solution for the so-called retirement-consumption puzzle. This puzzle describes the difference between the way retirement typically affects consumption rates (by seriously dropping them) and the smooth consumption in a standard life cycle model.

The authors review previous studies on the topic and suggest that the classical picture of the relationship between retirement and buying behaviors does not take into account the fact that people have different buying behaviors with different products. The authors believe that this idea can help to resolve the puzzle. Agarwal, Pan, and Qian try to test this opinion in their study with the use of the database of the largest bank in Singapore.

It records real transactions of Singaporean consumers that are carried out with the help of credit and debit cards or checks. The authors also use it to compare the information about the retired people to the still working ones. The authors believe that this method is better than surveys that are used in such studies as a rule: in the case of the database, no measurements are carried out, which reduces the possibility of errors. However, the authors admit that food is not always bought with a credit card, which is why they also use a survey for the grocery shopping.

Li, Shi, and Wu also point out that the theories of consumption have received the evidence that could be used to confirm and contradict them. As a result, the puzzle appeared, and the authors intend to resolve it in their work by focusing on different consumption sectors and household chores analysis. Apart from that, Li, Shi, and Wu highlight the fact that developing countries have not been studied as much as the developed ones. As a result, they carry out their research with Chinese consumers.

Their article uses the Urban Household Survey in China that offers buyer data for different parts of China. It is important that many regions of the country are characterized by different levels of economic development. The authors took this fact into account. Also, the survey allows distributing data between several areas of consumption. It was conducted by the National Bureau of Statistics in China. The authors also included the time use survey carried out by the same Bureau to gather data on the household chores. To define the retirement status, Li, Shi, and Wu focused on the types of occupation that have mandatory retirement and chose the population that was over the retirement age. Thus, the authors gathered the necessary data to test their means of resolving the consumption puzzle.

Conclusion

Agarwal, Pan, and Qian conclude that their study proves their hypothesis. They show that the changes in consumers behavior that are triggered by retirement are not homogenous. In particular, retired people tend to spend less money on entertainment, travel, and brand products. They also documented that retired people spend less on grocery by avoiding supermarkets and shopping at fresh markets. In general, retired people appear to buy cheaper goods, but the consumption still depends on the type of the product. The authors conclude that their work demonstrates the importance of considering different aspects of buying behavior in order to understand it.

Li, Shi, and Wu find that people who retire in China reduce their spending by 20 percent. Mostly, they stop buying work-related goods and services (traveling, for example) and begin to spend less on food. The food outcome can be explained by the household chores changes. Retired people have more spare time, which means that they can reduce food expenditures by spending more time on chores like cooking and shopping. Other nondurable goods are not affected by retirement. As a result, the authors insist that there is no riddle in post-retirement shopping if various groups of goods and different housework behaviors are considered.

Comparison

Both articles are devoted to the same topic of retirement-consumption puzzle and share the same hypothesis that this puzzle can be resolved. They test the hypothesis in different ways. Agarwal, Pan, and Qian consider several aspects of spending. Li, Shi, and Wu do the same and also study the house chores as a means of money-saving for retired people. Apart from that, the articles have different data collection tools.

Agarwal, Pan, and Qian propose a more reliable tool that combines a database of actual transactions and a survey. Li, Shi, and Wu consider only surveys, but they still come from a governmental body, which makes them reliable. The sampling methods and consumption units are different as well. Agarwal, Pan, and Qian choose 180,000 customers of the largest bank in Singapore (427). Li, Shi, and Wu regard 36,974 households that had been surveyed by the Urban Household Survey (438).

As a result, it is difficult to compare the samples. Both articles discuss Asian countries, and it can be suggested that their results may be not generalizable to the entire world, but they may begin to indicate a tendency for the Asian world. Finally, both articles suggest the evidence which shows that there is no consumption puzzle and that the relationships between retirement and consumption can be logically explained. Therefore, both studies contribute to the development of the understanding of the consumption puzzle.

Works Cited

Agarwal, Sumit, Jessica Pan, and Wenlan Qian. “The Composition Effect Of Consumption Around Retirement: Evidence From Singapore †”. American Economic Review 105.5 (2015): 426-431. Print.

Li, Hongbin, Xinzheng Shi, and Binzhen Wu. “The Retirement Consumption Puzzle In China”. American Economic Review 105.5 (2015): 437-441. Print.

Writing as a professional economist, my response to the recent article entitled ‘A Reluctance to Retire Means Fewer Openings’, by Catherine Marshall and Matthew Saltmarsh, (published September 2^nd 2009¹), is to welcome it, as a sound contribution to debate, not just in relation to the modern understanding and study of Economics overall, but for its tackling the important, if not crucial, number of issues surrounding retirement that will potentially effect everybody’s future in the world today.

The primary aim of this written response then, tackles these points. Principally those economic problems that the article highlights as arising from the effects of delayed retirement common to the experience of the United States – problems, which the article’s twin author’s correctly point out – somewhat unique to the United States economy, in contrast to other Western economies.

Taking this as its fundamental point of agreement, this response first, provides an economic analysis of these problems specific to the United States, with an eye to further discussing issues concerning future policy implications and consequences, who gains and who loses from these, and finally the impact this will have on market efficiency.

As mentioned, the Marshall and Saltmarsh article, highlights how the United States stands differently to many other countries in the world, in that, its policy regarding retirement, is very much one which relies on retiring individuals making and managing their own financial provisions for their retirement years.

This contrast then, with many other advanced Western democracies, where there remains in place what the article’s authors describe as adequate financial resources, allowing for traditional practices of providing in-built corporate retirement packages to continue unabated.

This, in the case of the latter, has meant retirement remains an attractive option. Whereas in the United States, many singles as well as couples, have lost a great deal in recent years, due to personal savings taking a pounding in the financial markets.

Conscientious savers eager (like many others), to take advantage of their retirement years to live out their ‘cherished dreams’, have contrastingly, been forced not merely to shelve these plans, but to carry on working into their retirement, and even then, as the article highlights, fail to regain all but a little of what they have lost.

This has effect also is not confined to a small or limited number of retirees, it encompasses right across the broad financial spectrum.

Naturally, policy implications, about how to best deal with repercussions figure high up on the United States agenda, especially, as even in Europe, where the degree of severity regarding this issue is not deemed as yet at crisis point.

Indeed, as an example, the article cites the case of the United Kingdom, where policy measures already are underway to increase the normal age (65) of retirement to 68 by 2004.

However, as the article rightly suggests, following the European approach, is not really an option. Future policy planning in the United States, has to take note of the still strong feeling among its current and upcoming retirees, regarding making individual provision for their retirement years.

This quite significant cultural difference, despite the balance of returns markedly in favor of European’s retiring, simply cannot be ignored. Indeed, measures put forward by the recently elected Obama administration, remain limited to for example, opt-out clauses in deference to this.

With a system overhaul not in the pipeline then, especially given the current recessionary climate, it is difficult to identify a clear set of winners emerging in the near future.

Clearly, there is already a long list of losers among today’s retiring population, and further to this, as also rightly pointed out in the article discussed here, is that with fewer people retiring, the number of openings and opportunities available for those just starting out on their careers diminishes too.

While the former, is deeply unfortunate, the implications of the latter suggest that if these problems are not addressed with a greater emphasis placed on changing what today passes for the status quo, the danger is, future generations of workers will blanch from seeing these existing methods as routes to helping provide future financial security for themselves.

Works Cited

Catherine Rampell and Matthew Saltmarsh, ‘A Reluctance to Retire Means Fewer Openings’, 2nd September, 2009.

Footnotes

¹ Catherine Rampell and Matthew Saltmarsh, ‘A Reluctance to Retire Means Fewer Openings’, September 2nd, 2009.

Employee-Sponsored Retirement Plan

The employer-sponsored retirement plan may be viewed as an employer-provided pooled investment account that allows an employee to use a portion of their pre-tax earnings for retirement, savings, or other long-term goals such as paying university fees or buying a home. The contributions of its employees do not exceed a certain amount or a certain percentage (Ameriprise). The plan is an attractive and relatively easy way for workers to reduce their taxes and savings in the long run. Currently, this plan is a notable option that allows individuals to receive savings from employers for retirement.

The plan supports retirement savings primarily in two forms: regular contributions to a company plan or DC 401(k) plan and by government or nonprofit organizations – referred to as 403b or 457b (U.S. Department of Labor). Both plans are funded by payroll deductions, which reduce employees’ taxable income. The plan also provides a transfer option, meaning employees who change jobs can transfer plan balances to the same employer or the same plan.

Generally, a 401(k) member can begin withdrawing money from their plan upon reaching age without penalty. Any withdrawal permitted before age is subject to an excise tax equal to ten percent of the amount distributed (above the ordinary income tax that must be paid). This includes withdrawal to pay expenses due to hardship unless the distribution does not exceed the amount allowed as a cap under section 213 of the Internal Revenue Code on an employee for amounts paid during a taxable year for medical care (IRS). Amounts withdrawn are subject to the regular income tax of the member.

Some employers may ban one, some, or all of the previous causes of difficulty. To maintain the 401(k) income reduction tax benefit, the law provides that, unless an exemption applies, money must be held in a tax reduction plan or equivalent plan until the employee reaches age. Money is withdrawn before age is generally subject to a 10% punitive tax unless an additional exemption applies.

Particular Plan

Income taxes on pre-tax contributions and income from investments in the form of interest are tax taxes. The ability to carry forward income taxes to a period when tax rates may be lower is a potential benefit of a 401(k) plan. The income tax deferral option has no benefit if the member has the same tax rates on retirement as it did on initial contributions or interest and accruals. Capital investment income from a 401(k) account is not subject to capital taxes (U.S. Department of Labor). This ability to avoid this second level of tax is a major benefit of the 401(k) plan. Compared to investing outside of 401(k) plans, one pays more income tax, but one pays less tax overall with a 401(k) due to the ability to avoid taxes on capital gains.

For pre-tax contributions, I will pay no federal income tax on current income he or she puts aside in a 401(k) account but still pays the general 7.65% payroll taxes (Social Security and Medicaments). I am planning to earn $50,000 in a year and save $3,000 in a 401(k) account that year reports only $47,000 of income on the annual tax return.

Benefits

Most pension plans provide significant tax benefits. More often than not, money deposited into an account is not taxable income for the employee at the time the contribution is made. However, if the employer provides plans, the employer may receive a tax credit on the amount contributed, as if it were regular workers’ compensation. This is known as pre-tax contributions, and the amounts allowed to be contributed are quite small among the different types of plans. Another significant advantage is that the assets in the plan can grow through investment without the taxpayer being entitled to year-on-year growth. Once the money is withdrawn, it is fully counted as income for the year of withdrawal. There are many restrictions on contributions, especially for 401k and defined benefit plans (Ameriprise). These limits are intended to ensure that high-paid workers do not receive too much tax advantage on spending by lower-paid workers.

Risks

Unlike ERISA-defined benefit plans or banking institutions that maintain accounts, there is no government insurance for assets held in 401(k) accounts. Plans for sponsors in financial difficulty sometimes have funding problems. At the same time, financial liability is given priority in bankruptcy laws. When moving from one job to another, this should be considered by the plan member as to whether to keep the assets in the old plan or transfer the assets to a new employer plan or individual retirement agreement (Ameriprise). The fees charged by IRA dees can be substantially less than the fees charged by employer plans and usually offer a much wider choice of investment vehicles than employer plans.

Automatic Saving Deduction

The saver sets up an automated savings plan in which a percentage of their income is regularly put into a checking account on a regular basis. This type of savings is ideal for those who wish to increase their efficiencies without having to physically deposit monies every few weeks. However, the discipline to follow through on savings may be an alternative to the automatic saving deduction. I believe I am disciplined enough to adhere to this alternative, but I still would choose the automated savings method.

Works Cited

Ameriprise. “What to Know About 401(k) Plans.”Ameriprise.

IRS. “401(k) Plan Overview.”IRS.

U.S. Department of Labor. “Types of Retirement Plans.”U.S. Department of Labor.

Retirement is a crucial stage of life. Nobody would want to be without funds after retirement. It is therefore important to invest towards retirement in such a way that returns are maximized and loses/risks are kept at minimal (Bodie, Kane & Marcus, 2010). Investment for retirement begins with defining what one needs at retirement. The savings needed for an individual to attain what is needed at retirements are affected by a number of factors. These include the risks that an individual is willing to undertake, an individual’s flexibility, and an individual’s approach to investment. A retirement investment calculator should take into consideration different security mixes based on the aforementioned facts to come with the best mix that will help an individual attain his/her desired goal.

Investment Strategies/Mechanics

Successful investment mixes take into consideration existing investment securities with respect to investment mechanics to come up with appropriate investment options within a portfolio. Various dynamic models of finance are important in portfolio management. Investment portfolios take into consideration cash flows originating from asset/operational investments, invested assets produced income, invested assets sub-classes, tax calculation and investment securities. Existing retirement investment options include IRA, Roth IRA and 401(k). Traditional IRA works on a basic principle of tax deferment. Money remains untaxed as long as it is in account. Based on this technique, the investor works on the assumption that the account will experience positive growth with time and what would otherwise have been lost to tax will be retained by the investor. Basically though, this retirement savings plans come with a lot of restrictions. For instance its major disadvantage is a stiff penalty in case of cash withdrawal before one attains age 59.5 years. Different IRA’s are available and each presents individual tax implications and requirements for one to be eligible.

Traditionally, savings made under the IRA account are subject to tax deductions. An individual’s taxable income is lowered. Tax breaks are offered by the government on expectations that more taxable income will be available in future. The saved amount therefore grows with tax imposed on it deferred (Almagro & Gbezzi, 2003). Interests, dividends and capital gains are not included in an individual’s annual income for taxation purposes. The amount accumulated becomes taxable upon withdrawal. It is important to note that this method lacks flexibility in time plan changes and in case of plan changes, stiffer penalties that would compromise set target are levied (Almagro & Gbezzi, 2003). 401(k) on the other hand takes a reverse approach. Money is taxed as it is earned (Almagro & Gbezzi, 2003). Withdrawals after 59.5 years is attained are not subjected to taxation as is the case in IRA. Often this method is attractive to the government. This method unlike IRA is more flexible as an investor can use the money as when need arises. Additionally, changes can be easily made to an investment plan if it is not meeting its target without fear of increased penalties.

Asset Allocation, Risks and Returns

In consideration of existing risks and my investment target, the asset allocation shown below is chosen. Justifications for its choice and risk versus reward features that facilitate the investment mix choices are discussed thereafter.

Investment options vary across the markets. They may be in form of cash, debt securities, stocks, mutual funds, derivatives, or as commodities. Investment securities are often engineered in such ways that they take into considerations factors which influence investment decisions (Sullivan & Steven, 2003). Such investments carry little interest and are vulnerable to increased risks during inflation periods. Debt securities on the other hand, offer fixed periodic payments as its returns and at maturity offer capital appreciation. This type of investment is much safer and poses minimal risks as compared to equities. Stock buying as an investment includes sharing of profits accrued by the corporate. They more risky and volatile compared to bonds (Jeffrey, Douglas & Stephen, 2009). As seen each investment options presents its own unique set of risks and hence an individual approach to investment is a necessary tool in determination of which investment approach best suits an individual. Investment securities include mutual funds, bonds, stocks and derivatives. Bonds refer to loan types or debt security over a specified time where the issuer gives interest at an earlier predetermined rate (Jeffrey, Douglas & Stephen, 2009). Payment of principle amount is done at later dates often referred to as the date of maturity. Bond issuers have the option of paying interest at specified intervals or as a lump-some payable at maturity. They generate fixed income treated as interest. The common bond issuing technique is underwriting. Some of the commonly issued bonds include treasury bonds, high yield bonds, sinking bond funds and participating bonds among others (Kevin, 2008). They bear minimal risks to investment.

Stocks are classified as either common or preferred. Majority stock issuance is done in this form. Common shareholders are not entitled to any payments in case of a company’s bankruptcy until such time that all creditors, holders of bonds and the preferred shareholders are paid (Kevin, 2008). On the other hand, the preferred stocks are to an extent representative of the company’s ownership though they do not come with equal voting rights as the case of common shareholders. Additionally, the holders are guaranteed of fixed dividend issuances forever. The holders are also paid off prior to payment of common shareholders in case of liquidation. However the shares are callable and the company may at any one time choose to purchase them for a given reason. This makes this option significantly an uncertain investment option. Mutual funds draw money from a number of investors and invest the same into investment securities earlier discussed (Brennan &Subramanian, 2002). The funds manager trades the investment in compliance with the objective for which it was formed. In the case of mutual funds, risk are distributed across a number of investors and hence the burden in case of the venture suffering a given risk.

Plan rationale

The chosen investment plan is founded on a number of factors. These include the investment time frame, i.e. the period of time for which the investment is expected to mature, the risk tolerance that I intend to take, my flexibility to investment, and caution t possible losses. Bonds are given a major percentage because of their future assurance and limited exposure to risks. They offer the best alternative for long-term investment as the principle sum is paid at later date when appropriate thus availing retirement cash. Stocks offer quick returns and cater for the time limits necessary to attain the set objective. Small cap stocks and foreign stocks offer more quick returns that cater for minimal time limit. The same is true for foreign stock. Large stock bear some level of risk but also offers quick returns that speed up attainment of the goal. In general the mix takes into consideration the aspects earlier described.

References

Almagro, M. & Gbezzi, T. L. (2003). Federal Income Taxes. PCAS, 75(2), p 95-162.

Bodie, Z., Kane, A. & Marcus, A. (2010). Essentials of investments: 2011 custom edition (8^th ed.). Boston, MA: McGraw Hill.

Brennan, M. & Subramanian, J. A. (2002). Investment Analysis and Price Formation in Securities Markets. Journal of Financial Economics, 38 (11), p 432 – 298.

Jeffrey, H. B., Douglas, K. C. & Stephen, R. F. (2009). Trading Volume and Stock Investments, Financial Analysts Journal, 65(2), p 67.

Kevin, A. H. (2008). Investment Options. Journal of Investment and Trade Development, 4(3), p 56 -59.

Sullivan, A. & Steven, M. S. (2003). Economics: Principles in action. Upper Saddle River, New Jersey: Pearson Prentice Hall, p 271.

The 401(k)-retirement plan was introduced with the hope of solving the retirement benefits problem in the country, but despite being in existence for more than 30 years, the plan has failed to serve its purpose. Brady studied the effectivity of the 401 (K) plan on the retirement benefits of employees and successfully concluded that the 401 (K) is a complete disappointment (1). Using a Monte Carlo simulation, Brady could prove that an individual can have more benefits in retirement (around 20%) from alternative investment than from investment in the 401 (K) retirement plan (33). In an interview, Teresa Ghilarducci- the director of the Schwartz Center for Economic Policy Analysis, assert very distinctively that 401 (k) is such a product that is not designed according to the need of the middle-class Americans. Yet American people invest in the 401 (K) without knowing the actual cost of the investment, as a result, people receive lower retirement income from the investment (Breslow). Various writings on the 401(K) retirement plan benefits identified that the main economic cause for the 401 (K) failure is the information asymmetry. The 401 (K) policy is not instructive and not easily fathomable for the people who are supposed to receive the benefit from the program. On the other hand, the policy has a positive impact on the employer’s income. Another important fact is, the 401 (K) plan requires a higher expense ratio than the regular pension plan and this information is not clearly shared with the people who are supposed to be the actual beneficiaries of the plan. The providers of the 401 (K) retirement plan are also responsible for the failure of the plan, by concealing significant information and providing falsified information to the employees and to the organization the 401 (K) providers create information asymmetry which is a reason for the drastic failure of 401 (K) plan.

Another thing that could be a reason for the failure of the 401 (K) plan is the plan itself the plan offers fewer options for the investors whereas mutual funds offer more options for the investors. The traditional theory of economics suggests that more options are beneficial for an investor, but the paradox of choice suggests that sometimes more options have negative effects on the decision-making process. For many pension participants, it is difficult to decide between many investment options, and several studies proved that number of default investment options aid the decision-making process (Turner & Klein, 5). The study further discussed that offering fewer options than too many options is better for some people. Turner and Klein assumed that probably for this particular reason 401 (K) plan offers limited options for the pension participants (5). But these limited investment options could be an economic reason for the investment plan to experience a higher cost of management and therefore the reason for the loss of investment value. Curtis and Ayres successfully proved that investors of directed 401 (K) plans suffer the loss of investment value due to the decisions made by the fund manager as well as for the suboptimal choices of the investors (2). Besides that, the expense of the 401 (K) plan is a decisive thing to consider as the pension return of an employee is heavily affected by the fees associated with the employee’s 401 (K) plan fees. A booklet published by the US department of labor publications named “A Look at 401 (K) fees” delivers a seamless description of the fees associated with the plan, and generally, the plan involves three different types of fees. The investor of the 401 (K) plan pays administration fees, investment fees, and individual service fees (A Look at 401 (K) fees, 8-9). The booklet of the US department of labor shows that an increase in one percent of the fees in the 401 (K) plans can reduce the retirement income to twenty-eight percent (A Look at 401 (k) fees, 7-8). The investor has to pay the administration fee for receiving various management services from the fund management company, but the administration fees may vary from company to company. Usually, if the fund size is big then the administration expense would be at a lower percentage, and for the small size funds, the investors should be paying a higher administration fee. The investment fee is the major part of the fees in the 401 (K) plan; it is the fee that the investors pay for managing their investment fund. Investment fees depend on the expense ratios of all the selected mutual fund in the 401 (K) portfolio.

To calculate the expense of the mutual fund in an investor’s portfolio multiply the expense ratio by the final balance in that fund. For example, if the investor has $1000 in a fund and the expense ratio of the fund is.45% then the investor would have to pay $4.5 per year as the investment fee for the fund. Numerous financial advisors suggest that an expense ratio less than 1% is the reasonable expense for a mutual fund, but if it exceeds the percentage then investors should reconsider their investment; because the higher expense ratio would reduce the retirement benefit of the participants to a great extent. Another type of fees an investor might need to pay is the personal service fees; it is charged when the investor receives any personal service from the company such as receiving investment consultancy services. The investment consultancy service fees may be charged to the mutual fund if it receives the portfolio construction services from the experts. The most alarming issue related to the fees is the hidden costs; The 401 (K) plan have some hidden costs that are not disclosed to the pension participants, or these costs are explained in such a way that are not understandable to the investors.

To illustrate the effect of the compounded fees let’s consider two different investors who invested their money in two separate mutual funds under 401 (K) plan. Both the investor invests $15,000 yearly and they will be saving the amount for next 30 years, the annual inflation rate is 2%, rate of return is also same 8.15% for both the fund but Mr. A’s fund has an expense ratio of.15% and Mr. B’s fund has an expense ratio of.65%. If we calculate the present value of the payment then we will find that present value of the growing annuity of Mr. A is $204,997 and present value of the investment of Mr. B is $216,301, calculation shows Mr. B pays more than Mr. A due to the higher expense associated with his investment (“Present Value of a Growing Annuity”). According to the “Present Value of Growing Annuity”, the initial payment for both the investor are 15000, the growth rate is the inflation rate of 2%, and rate of return for Mr. A (8.15-.15=8%), and for Mr. B (8.15-.65=7.5%). Consequently, if the investors want to benefit from the 401 (K) plan, then the investors will need to come up with a solution to all the problems with 401 (K) plan. Muller and Turner show that many 401 (K) investors do not change their investment plan when they really should roll over their money into a lower cost pension fund (5-7). It is strongly recommended to the retirement plan holders to roll over the investments if their pension fund has a high expense ratio. The employee and the employer should be aware of all the issues related to the 401 (K) plan, which includes, but are not limited to- understanding of mutual fund, rate of return, costs of the fund, dynamicity of the fund manager, and issues that changes the retirement benefits of the employee of the 401 (K) plan.

Works Cited

United States, Department of Labor, Employee Benefits security Administration. “A Look At 401 (K) Fees”. EBSA Resource Center, Aug 2013. Web.

Brady, Peter J. “Can 401 (k) Plans Provide Adequate Retirement Resources?” Public Finance Review 40.2 (2012): 177-206. Web.

Breslow, Jason M. “Teresa Ghilarducci: Why The 401(K) Is A “Failed Experiment””. FRONTLINE. N.p., 2017. Web.

Curtis, Quinn, and Ian Ayres. “Measuring Fiduciary and Investor Losses in 401 (k) Plans.” 7^th Annual Conference on Empirical Legal Studies Paper, 2012, Web.

Muller, Leslie A., and John A. Turner. “The Persistence of Employee 401 (k) Contributions Over a Major Stock Market Cycle: The Limited Power of Inertia.” Benefits Quarterly 29.3 (2013): 51-65. Web.

Turner, John A., and Bruce W. Klein. “Retirement Savings Flows and Financial Advice: Should You Roll Over Your 401 (k) Plan?.” Benefits Quarterly 30.4 (2014): 42-54. Web.

“Present Value of a Growing Annuity.” Present Value of a Growing Annuity – Formula and Calculator. Finance Formulas, Web.

Facts You Did Not Know

• Americans spend 13-20 years in retirement.
• Social security offers on average $16,320 per year, only 30-40% income in comparison to a typical salary.
• Medicare does not cover long-term medical or assisted living costs (Kurt).
• 1/3 of households spend all their earnings, not putting away for retirement.
• 4 out of 10 Americans are reaching retirement age with limited or no savings (Dews).

The facts on this slide are just some of the worrisome statistics about retirement in the United States. For many people, retirement is a time to dedicate to travel and activities they always wanted. Others want to lead a peaceful, healthy life. However, it can quickly become a period of worry and stress. Many Americans do not realize the significant loss of income that comes with retirement and how a lack of preparation can be detrimental.

Significance

• Credible resources with up-to-date information.
• Inadequate preparation leads to poverty.
• The process of investing for retirement is long-term and complex.
• Financial and legal challenges require understanding the system.
• Strategies to begin your path to retirement.

A variety of credible resources and platforms were analyzed to compile the most accurate and up-to-date information on the topic of investing for retirement. Retirement funding consists of using a variety of resources to ensure income is diversified. The complex process requires understanding, and specific steps are developed to ensure you are on track with your savings. This presentation will educate about the strategies that can be taken to start investing for retirement to guarantee a stable future. I will discuss strategies for determining the amount that needs to be saved, which resources to use, and financial details of asset allocation.

What to Consider?

• Consider living costs – desirable 80% of the preretirement budget.
• Lifespan – modern medicine can prolong retirement for as long as 30 years.
• Savings generating a return – average net returns of 6-10% (O’Hara).
• Time horizon – how much time left to begin saving.
• Risk tolerance – investment may bring greater returns with higher potential risks.

Retirement investment is based on using this combination of factors to determine the best plan for an individual. Everything comes down to simple mathematics of balancing income and expenses. Therefore, the steps taken to ensure a stable retirement depends on current saving and investment strategies match lifestyle choices in the future. However, retirees usually do not require 100% of preretirement income since many expenses are reduced, including the need to save for major purchases and income tax.

Retirement Account

• Notable gap between generations in retirement account ownership (only 46% participation in 25-34 age gap).
• Retirement accounts are concentrated in the upper quartiles of the income distribution (Rhee and Boivie).
• Most retirement accounts offer tax benefits.
• Households with retirement accounts are able to save more.
• Savings last longer and cause less stress for families since everything is planned.

Unfortunately, trends suggest a much lower prevalence of retirement accounts in new generations. That is understandable since a retirement account can consume a significant portion of earnings. However, it is worrisome since, as seen in the chart, the amount saved is unsustainable for retirement. A retirement account is necessary to secure financial future, especially in a time of low Social Security and decreasing popularity of workplace pension.

How Much Do I Need To Save?

• Technology allows to use internet resources for basic calculations.
• Consider current income and desired retirement income.
• Evaluate current savings and assets, including home equity.
• Use financial advisors to determine the rate of return and consider inflation.
• The table shows recommended ratios of income that households should save at each age.

One of the most critical steps in calculating retirement plans should be to consider inflation. Over decades, one’s saving may devalue significantly in terms of simple purchasing power. An annual retirement income of $40,000 results in $3,300 per month. With an average Social Security benefit of $1,300, it leaves approximately $2,000 one must fund (or $24,000 annually). With an estimated 6% return on investment, a retiree should save approximately $400,000 nest egg before tax and inflation.

Investment

• Key to a secure retirement is to invest safe assets.
• Investment produces compounded interest over the years until your retirement and after.
• Many retirement-focused investments offer tax incentives.
• A competently diversified portfolio is more profitable than all-cash savings accounts, able to overcome inflation.

Investing for retirement implies not just planning out future savings, but properly directing assets into long-term investments which will be producing money through compounded interest. A critical part of retirement accounts discussed here is that they have tax incentives which through competent financial planning can result in little to no tax collected at withdrawal once retirement age is reached. When considering large sums needed for retirement, inflation and tax are detrimental forces which can cause significant losses that proper investment can defer (“”Preparing Your Savings for Retirement”).

Types of Accounts

• Social security – guaranteed by the government, based on lifetime earnings.
• 401(k) – usually offered through an employer or can be set up individually to withhold money through indicated payroll deduction.
• Individual retirement account (IRA) – varies by type, an investment tool consisting of stocks, bonds, and mutual funds.
• Pension plans – less popular in modern companies, requires employer contribution into a pool of funds that are invested and distributed to employees at retirement.

There is a wide variety of federal, employee, and private retirement account options. Each carries a certain amount of risk and return as well. The table highlights the average returns on investments based on these accounts. As evident, there is a significant difference between money market accounts such 401k and stocks that are part of the IRA.

Asset Allocation

• Diversification is Key to growth and managing risk.
• Diversification is a long-term protection against losses and financial forces out of your control.
• Rebalancing is necessary to maintain a comfortable level of risk.
• Investment risks should be assessed based on time frame and financial needs.
• Monitor portfolio to determine if a change in strategy is necessary.

When a portfolio is created, one becomes a factual investor even if you are not doing any stock trading and relying on professionals. Despite its seemingly complex nature, it is necessary to monitor investments to stay within comfortable bounds of risk. Diversification is critical to protecting from unexpected financial forces which may derail a high-risk investment. It is recommended that no more than 5% of the portfolio consist of a specific stock or bond (“The Guide to Diversification”).

Shifting from Saving to Spending

• Asset allocation in retirement helps to ensure funds for prolonged prosperity.
• Portfolio withdrawals should be gradual, with consideration of expenses and tax.
• More households than ever are choosing to save a portion of retirement income.
• Rigid spending plan protects from crises.
• Avoid spending all your money within the first few years.

It is absolutely critical to realize that entering retirement does not indicate that one should stop saving and investing into the future. Even certain accounts that require the withdrawal of funds (specific types of IRAs) set a deadline at 70 years of age. Rebalancing the portfolio remains a valid option considering the prolonged lifespan and increased costs of health care. Strict spending plans protect the boundaries of financial security for retirees who purchase non-essentials.

Distribution of Expenses

• Retirement does not result in a decrease of expenses as many people do not want to lose the quality of life.
• Emergency costs such as health care should be considered.
• Even with proper planning, income decreases.
• Planning expenses as far as a decade into the future with the impact of inflation can help be prepared.
• Housing (including utilities) is an expense often underestimated when planning for retirement.

The chart you see in this slide is an example of the extensive planning of expenses that needs to be done once retirement is underway. While it is difficult to predict prices, inflation, and financial conditions at a young age, once retirement starts, it is possible to plan such things out. Realistically, with many American families lacking competent retirement savings, such plans will be necessary to maintain an adequate quality of life as seniors.

Estate Planning

• Power of attorney and wills should be documented.
• A trust can be incorporated into a financial plan.
• Life insurance and estate plan can help the family after one’s death.
• A clear outline of beneficiaries helps avoid legal battles.
• Each aspect of estate planning requires separate professional expertise.

Unfortunately, with the age of retirement, death is something that should be considered even if one has excellent health. Estate planning consists of various legal and financial technicalities which require the guidance of professionals to ensure one’s wishes on the disbursement of the estate (including the investment portfolio) are fulfilled after passing. Many would like to ensure the financial well-being of their spouses and children which makes estate planning the final and necessary step in the estate planning process.

Conclusion

• Start saving as soon as possible!
• Consider financial factors and risks.
• Diversify portfolio of investment.
• Calculate income vs. expense ratios.
• Plan asset allocation to ensure long-term stability.
• Retirement plan is a guarantee for the future.

Using all the information in this presentation, you can begin to start saving for retirement today. Even though the prospect of the future is ambiguous, especially in terms of finances, it is a necessary step that everyone needs to take. Taking into account all relevant financial factors and risks, a competent and profitable portfolio can be developed which will address all relevant needs in the future. Use careful planning and asset allocation that would guarantee long-term stability. Do not leave your future up to chance, start investing for retirement today!

Works Cited

Dews, Fred. “10 Facts About Social Security and Retirement Saving.” Brookings. 2015. Web.

Kurt, Daniel. “6 Surprising Facts About Retirement.” Investopedia. 2017. Web.

O’Hara, Carolyn. “How Much Money Do I Need To Retire.” AARP, 2015. Web.

“Preparing Your Savings for Retirement.” Fidelity, n.d. Web.

Rhee, Nari, and Ilana Boivie. “The Continuing Retirement Savings Crisis.” National Institute on Retirement Security. 2015. Web.

“The Guide to Diversification.” Fidelity. 2017. Web.

Introduction

The massive retirement and the increasing trend towards earlier retirement have been the most two striking worldwide phenomena. The average age for a person to retire is still declining despite the rising life expectancy (Bound, 2007).

For example, the average retirement age for men in US has declined from 68.5 to 62.6 in the last five decades; and the women age for retirement declined from 67.9 to 62.5 years. The average age retirement was 61 years in Canada and China 51.2 years by 2000 (Gendell, 2001).

Voluntary early retirement is granted to individuals only with the approval of the Office of Personnel Management (OPM); it is under the federal law and agencies. This option is provided by the OPM with the aim of assisting agencies to restructure their work force.

There are laid down requirements for one to qualify for voluntary early retirement. For example, for those employees covered under CSRS, one is required to be at least 50 years with 20 years of federal service, or at any age for those who have attained 25 years of federal service.

The increasing numbers of people retiring at earlier ages are making the health insurance and the social security systems to get worried. Research shows that US social security system is likely to pay out much money in benefits than it collects from payroll taxes by 2018.

In other countries such as China, the security system will not be sustainable unless the mandatory retirement age is increased. Whether the increase in early retirement is socially or individually beneficial, it has an impact on health outcomes (Boldrin, Dolado, Jimeno & Perrachi, 1999).

Reasons for Early Retirement

Researches carried out by various groups point out too much generosity by the social security as the major reason behind early retirement. Studies indicate that these generous benefits have resulted to intensive early retirements. They argue that the benefits and the contributions are high (Chong & Jung, 2009).

Technological progress is another cause identified for early retirement. The introduction of new goods, machines and production methods elude the need for human capital. Technological advances have made it possible for some human labor to be effectively replaced.

Employees who are replaced by technology are relocated to other tasks they may not like and thus they may end up retiring early. Other reasons identified by the researchers include fears by the employers that the elderly employees might develop reduced productivity through their decreased interest with their work and inability to advance their skills.

Others believe that poor relationship with co workers results to early retirement. More so, employees whose services are no longer required by the industry may opt for early retirement.

It has also been shown that those who have lower education backgrounds are more likely to ask for early retirement; researchers have argued that people with lower education backgrounds are reluctant to advance their skills through further learning and thus this lowers their productivity and make them less willing to work (Ahituv & Zeira, 2001).

Various reforms have been undertaken by the pension scheme to reduce the rate of early retirement. These include penalties awarded for every early retirement applied for and awarding of more credits to those who delay in retiring. Other reasons connected to early retirement are wages.

Studies indicate that, the less the salary one earns, the more the likelihood of that person retiring early. However, there is a contrasting effect for those who are partially employed. Existing research has also identified health as a cause for early retirement (Chong & Jung, 2009).

Benefits for Early Retirement

Early retirement is described to be beneficial for economic growth by various researches. Arguably, some of the studies show that it gives rooms for firms to organize their work force through the removal of the least productive employees from the work force by giving them early retirement and replacing them with productive workers.

Productivity is described as one of the major drivers for economic health. The retiring individuals can establish their own businesses from the benefits they get (Sala-I- Martin, 1996).

Early retirement is beneficial because it allows one a permanent leave from work. It is common to find some people regaining their health after retirement; this happens for the case where the working conditions are challenging. Some people become susceptible and weak hence the need for early retirement.

The second benefit of early retirement is the financial benefits an individual gains. In accordance to the old time saying, “time is money”, many young men opt for an early retirement so that they establish their own businesses. This puts them at a position to excel through their efforts and determination.

Early retirement can also be due to other reasons such the need to have ample time with loved ones. This is so especially for incidences where loved ones are sick and need more attention; for example, a spouse with chronic illness or those who are disabled and need special attention. Early retirement also places one at a position to start a new career that he/she might have been cherishing for a long time (Weltman, 2008).

Disadvantage of Early Retirement

Retirement has been shown to have adverse effects on people’s health. This is attributed to the sudden transformation in an individual’s lifestyle such as loss of career identity, lack of social attachment and loss of the sense of value for their role in the society.

While for some, job-related activities might have been the only forms of physical activity that they were active in. However, early retirement can be good for health. Supporting evidence includes the freedom one attains from work stress and thus leaving sufficient time for the individual to participate in other healthy activities (Chong & Jung, 2009).

Individuals’ early retirement means that their benefits are deducted by the social security. The deduction is done at a certain percent for each month before they attain the retirement age. This is done to encourage people to abide to the social security general rule, that is, social security benefits should total the same amount to an individual’s life time benefit. The benefits are paid in smaller amounts.

The major disadvantage is that individuals’ benefits are permanently reduced. This implies that the individuals will be required to manage their expenses well including all aspects of life such as housing expenses, family budget and credit card charges. This implies that they have to change their life styles abruptly (Bratberg et al., 2004).

Schneider (1998) described the current generation as workaholics. This implies that when work is taken away from them, they suffer physical and mental health. More so, many people have the perception of early retirement as a loss of work. This may imply the loss of their role as the bread winner of their families. This might make them suffer a condition referred to as “severe gender strain”.

This can affect most of the family to a point of ending strong marriages. Other effects include the downsizing and the discrimination from the society. This may lead to a reduction of social contacts. Others may not stand the degree of loneliness and isolation (Glicken, 2010).

Research by Zedlewski and Butrica showed that individuals who volunteered or had full-time work had improved health, reduced risk of developing chronic illness and emotional difficulties such as depression than those who retired early. Arguably, those who had earlier retirement had an increased probability of developing illness and developing psychological difficulties (Glicken, 2010).

Conclusion

Early retirement is viewed as a double edged sword. Individuals are encouraged to evaluate their way of living. Therefore, before reaching into a decision of getting an early retirement, it is important for one to think about his or her life without working, the effects on the relationship with other employers and how they intend to spend their free time and lastly, how they intend to live without regular income.

This paper concludes that early retirement is not a better option. More so, having something to do after the retirement benefits individuals and enhances their peace of mind, thus keeping them healthier by engaging them physically and emotionally to their surroundings.

Early retirement, therefore, ought to be given much consideration; all the benefits and losses likely to be incurred should be taken into consideration and if possible advice should be sought from experts in order to avoid committing a big mistake.

References

Ahituv, A., & Zeira, J. (2001). Technical progress and early recruitment. The Hebrew University of Jerusalem. Web.

Boldrin, M., Donlado, J., Jimeno, J., & Perrachi, F. (1999). The future of pension in Europe. Economic Policy, 29(1), 289-320.

Bound, J., & Waidmann, T. (2007). Estimating the health effects of retirement. Michigan Retirement research Center Research paper; University of Michigan. Web.

Bratberg et al. (2004). Assessing the effects of an early retirement program. Journal of population Economics, 1(1), 1.

Chong, B., & Jung, J. (2009). The cause of early retirement: social security generosity or population aging. APEA Conference 2009 (June 28, 2009). Web.

Gendell, M. (2001). Retirement age declines again in 1990s. Monthly Labor Review, 12(1), 21.

Glicken, M. (2010). Retirement for workaholics: life after work in a downsized economy. New York, NY: ABC-Clio.

Weltman, B. (2008). Guide for tough times: tax and financial solutions to see through. New Jersey, NJ: John Wiley and Sons.

Sala-I- Martin, X. (1996). A positive theory of social security. Journal of Economic Growth, 1(1), 277-304.

In order to exhaustively evaluate the merits and demerits of an early retirement, it is important to consider the longtermview as opposed to a short term view. Reductions in personal expenditures in the short term have to be balanced with increasedpension benefit liability and expenses over thelong term. Nevertheless, budgetary and administrative discipline is necessary in order to get such reductions.

Some issues associated with early retirement should be addressed before deciding whether or not to take an early retirement. It is important to consider the economic, mental and emotional impacts of early retirement. Another important aspect is the decision’s effect on the immediate family. This paper seeks to prepare a decision paper outlining both the advantages and disadvantages of early retirement.

Many people find themselves pursuing money making activities and finding it hard to stop. Either in employment or in business, there is an insatiable urge to attain a social status. Many end up accomplishing the social status and climbing the top of the ladder, but end up having limited time to enjoy their accomplishments.

On the contrary, some people are forced to retire unwillingly or without their consent. Many companies or employers have a policy for retirement after fifty five years, unless an employee has obtained a “chief” management position in the company. Beside the government policy on retirement, early retirement is a personal decision (Martel, 2011).

The first advantage of early retirement is that after the end of a career, it is another new beginning. The retiree has a lot of time to spend with the family and friends. The retiree gets a lot of time to manage and participate in family affairs.There is adequate time to eat healthy cooked food and do more exercises and physical activities as opposed to junk food while sitting in an office. Early retiree can have an opportunity and adequate time to do the things that were impossible when working.

Some of these include travelling around the world, spending time with the grand kids and gardening. The fundamental assumption is that early retirement is for those who have already saved. This gives them a chance to do a lot in their young active lives, as opposed to after fifty five years of age(Zelinski, 2009).

An advantage that accrues to the society at large is the vacant position left by the retiree. A much younger person will be able to occupy the post; this will solve the unemployment problem that is dominant in young generation. In this way, early retirement becomes a program or a mechanism designed to solve unemployment problems in the society.

On the contrary, it should be mentioned that this is not always preferred by employers. For employers, replacing an old experienced employee is not easy. Some characteristics like conscientiousness and reasonableness cannot be easily replaced (Martel, 2011).

Early retirement is an attractive prospect for many workers especially if it is packaged with incentives. It is possible to have an early retirement and still enjoyed a stable and a secure financial ability. However, this applies only to those who spent their time to plan ahead of early retirement.

It is important to accumulate adequate financial and personal resources during employment. The retiree also requires making thorough long time projections. The retiree should hire a qualified accountant or a financial expert to help with the projections. If the income and expenditure projections on long time basis are in a safe position, then it is possible to consider early retirement(Zelinski, 2009).

Early retirement gives a person an opportunity to learn and practice new skills, and have a built-in interaction with people. The retiree gets an opportunity to concentrate on new skills while meeting new interesting people. Another way of utilizing the time and potential is by working with a humanitarian non-governmental organization. The retiree is able to bring in new skills, share with others, and acquire new skills.

The retiree can volunteer as a teacher, a move that has been proven to be successful. This enables the retiree to interact with young people who can listen unlike at workplace. It is appealing to work with a young person about job prospects and life issues than talking to an old experienced person(Zelinski, 2003).

Early retirement incentive programs are very popular strategies applied by companies around the world to reduce the employees. They are also advantage plans for companies in mergers, downsizing or takeovers. Experienced managers have also applied then to reduce layoffs.

To the employee, it is beneficial and the most humane way of ending a career in a company. Early retirement incentives are practically appealing to an employee who does not have a guarantee of keeping the employment. For those aspiring to retire without any benefits, they are the best ways of going for early retirement. However, the retiree should evaluate critically the benefits offered by the incentives, and those that will be accrued for normal retirement (Martel, 2011).

There is always a reason for avoiding early retirement. Getting the free time after retirement has some negative consequences. Some people feel redundant, a symptom for impending depression. Economically, inflation should be used as a determinant for early retirement. The pension and savings should be able to support the retiree. Since the retiree will spend a lot of time in retirement, the effects of inflation will be heavily felt.

The cost of living continues to increase after retirement until the retiree has reached eighty years of old. Statistics shows that those who retire early have an increased percentage of living expenses when they reach eighty (Paul & Townsend, 1992).

A good number of retirees mistakenly assume that their tax responsibilities will reduce after retirement. To some extent, some taxes are avoided after retirement, but on the other hand, they could also go up. Additionally, income tax never goes down than they are before retirement.

Retirees’ lifestyles changes significantly after retirement. Before planning on early retirement, a retiree should be able to curtail their lifestyle. The optimum spending after retirement should be about 75% of what was being spent during the working days. A considerable number of retirees spend more than the optimum amount, a move that complicates and worsen their life after retirement (Paul & Townsend, 1992).

Another commonly ignored expense is the cost of health insurance. This comes as a disadvantage of early retirement unless the retiree worked for a company that extends health insurance until the stipulated age, probably sixty five. The retiree is forced to pay high health insurance premiums from the accumulated savings until sixty five. Some early retirement incentives endorsed by the employer extends the health insurance until sixty five, after which one is eligible for Medicare(Zelinski, 2009).

A considerable number of early retirees gets fed up with their full time working schedules and decide to retire. After retiring early, they proceed to look for part time job without considering its drawbacks. Most of part time jobs do not have regular, fixed or full time schedules.

The catch is that most of these jobs are not financially and emotionally rewarding. It becomes hard to supplement the retiree’s income by working on part time basis. The additional income obtained is also channeled to other additional costs like higher income tax. The retiree is affected both mentally and emotionally due to reduced social security offered by part time jobs (Paul & Townsend, 1992).

The social security benefits will be cut down significantly by retiring early. The early retiree will be forced to start drawing the benefits early. The monthly spending will be lower and the effect of inflation will be hard to deal with.

If the personal savings of a person is not adequate, the social security benefits will be overused and over-relied upon. The retiree will also be forced to start drawing and spending funds that has been set aside for personal retirement plans to supplement the benefits. This will also reduce the time of contribution to the plans, and hence less benefits.

The retiree will also incur steep penalties by withdrawing from personal retirement plans before the stipulated age. The early retiree is also penalized by the company in the company pension plans. For this matter, the person is undoubtedly unfit for early retirement (Baker, 2007).

In conclusion, early retirement is not an overnight or an instant decision. The retiree should compare the psychological and emotional ramifications of continuing to work and for early retirement. Impact on the members of the family should also be put into consideration. The situation should be assessed realistically without a rush decision being made.

If the future of your job is not guaranteed, the early retirement option will be most desirable. If the company is likely to have future layoffs, it is not good to be left behind the early retirement incentive program that has been offered. As mentioned earlier, the retiree needs to hire a competent financial advisor to project the long term income versus expenses. If the figures fallin your expectation bracket, then you should consider retiring early.

References

Baker, S. (2007). Your Complete Guide to Early Retirement: A Step-by-Step Plan for Making It Happen. Ocala, FL: Atlantic Publishing Company (FL).

Martel, J. (2011). Early retirement with no regrets. Retrieved from Bankrate.com: Comprehensive, Objective & Free. Web.

Paul, R. J., & Townsend, J. B. (1992). Some Pros and Cons of Early Retirement. Review of Business , Vol. 14;22-34.

Zelinski, E. J. (2009). How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won’t Get from Your Financial Advisor. Putian District, China: Visions International Publishing.

Zelinski, E. J. (2003). The Joy of Not Working: A Book for the Retired, Unemployed and Overworked- 21st Century Edition. Berkely, Carlifornia: Ten Speed Press.

Retirement communities vary a great deal in the kind of housing and services available, but the essential element of them all is that this is primarily independent living with recreational facilities, health services and social programs made a part of the community (Ferrell & Coyle, 2010 ). So how do you pay for retirement community? This is a question which lingers among the mind so f many people.

Essentially, many early retirement communities were constructed by religious groups or fraternal organizations that especially required new residents to turn over their entity operating the retirement community in return for lifetime care and services. There are several types of facilities which take care of the elderly. However, in this paper we are going to be looking at two types of these facilities, that is, the continuing care retirement communities and the skilled nursing facilities.

Continuing care retirement communities is a term that also represents a broad spectrum of alternative housing arrangements. They formerly were referred to as Life Care communities(Weisman, 2003). A common thread among Continuing Care Retirement Communities is the providing of housing, meals, nursing home and other health related services.

Some of the advantages of the Continuing Care treatment include having an option whereby the life care represents an alternative to institutionalization for older people who can no longer maintain their own homes for both health and financial reasons, but who do not want or need the extensive care provided in a nursing home (Morrison, Bennett, Center for Geriatrics and Gerontology (New York, & Health, 1986).

Unlike nursing homes and other retirement communities, CCRCs give their aging residents the assurance they can live independently as long as possible and they can receiving nursing care and support services as long as needed. Another advantage is that the CCRCs are that the quality of care may be better than in any other types of long term care facilities. They also tend to use health care resources less than the residents of comparable faculties.

These favorable health status factors may be attributed to the availability of prepaid health care and other community services; they may also be influenced by the self – selection process, which reflects the better health and higher income of those who are choosing CCRCs (Morrison, Bennett, Center for Geriatrics and Gerontology (New York, & Health, 1986). Skilled nursing services or skilled rehabilitation services are services which are provided on an in-stay program for the elderly in the society.

They involve working with qualified and skilled personnel in the medical field. Advantages of Skilled Nursing facilities are based on the fact that the inpatient unit has some advantages and some disadvantages. Advantages include: patients requiring palliative care have familiar place to go during the exacerbations and remissions that come with progressive disease(Ferrell & Coyle, 2010 ).

Unit staff and policies are under the control and financing of experts trained as a team who are skillful at difficult care and communications. Patients may get palliative care earlier if other care teams see the advantages of this approach and trust that patients will receive good care. Some of the disadvantages include the fact that it can prevent others from learning valuable palliative care techniques if the center staffs are seen as “specialized” and are secluded in one area.

If the center transfers include a transfer of doctors to a center specialist, patients and families feel abandoned by their primary team in the final hours and lastly, hospice providers fear loss of the hospice philosophy when the center exists in the context of the general hospital (Ferrell & Coyle, 2010 ).

References

Ferrell, B. R., & Coyle, N. (2010 ). Oxford Textbook of Palliative Nursing. Oxford: Oxford University Press.

Morrison, I. A., Bennett, R., Center for Geriatrics and Gerontology (New York, N., & Health, N. Y. (1986). Continuing care retirement communities: political, social, and financial issues. New York: Routledge.

Weisman, S. (2003). A guide to elder planning: everything you need to know to protect yourself legally & financially. New Jersey: FT Press.