Running Head Applied Managerial Finance Retirement Planning

Running Head Applied Managerial Finance Ii1retirement Planningc

Retirement Planning Currently am 32 years old. I currently work as a junior accountant and according to my profession am planning to retire from the job at 65 years old. Since I plan to retire at 65 years, I have 33 years whereby I will be employed working for the company. Currently, I have a saving of $10,000. The annual saving usually generated an interesting average of 3.5%. Having the possibility of generating income from different sources of income is very key for retirement financial planning. Everyone wants to ensure that he/ she stable after retiring. Some people prefer to create a saving account where they can direct all their excess money to in order to save. The amount which one saves for retirement is based on the amount of income that has been channeled to the retirement. The more income and funds directed to the retirement fund the higher funds in the retirement scheme after retirement. According to my plan, I will be saving an average of $10,000 annually for the next 30 years. My savings account has been experiencing an interesting growth of 3.5% each year. Between 5 and 15 years I would like to increase my saving from $10,000 annually to about US $15,000. The savings will be growing at a rate of 3.5 percent annually. This kind of saving will from employment income where I will be fully employed as an accountant. To ensure this is successful each month, there is a deduction from my total earning directed towards retirement planning. My second source of income will be my rental income. The rental studio which my parents have apportioned to me will be the source of funds for my retirement funds. Currently, the rental generates an income of 12,000 net income after tax. The saving forms the rental income stands at $ 180,000. I plan to continue saving rental income for the next 15 years after which I am planning to acquire a house. The purchased house will be rented out to clients to continue generating cash together with other sources of funds. The income from rental income is likely to grow at a rate of 2.5 percent annually for the next 10 years, 3.3 percent annually between 10, and 15years. The income which I will generate from private contracts I will channel it to the retirement saving. The income will be attracting an interest rate of 2.5 percent. Currently, I make USD $15,000 from private contracts which I have with different clients. I project growth of 4% annually from the private contract. Income from the contract is also projected to grow at a similar rate as the annual growth in the number of contracts I will acquire privately. According to my plan about saving for retirement, I started it immediately after I started working at 20 years. In the beginning, I had disciplined myself to be saving 5 percent of my total earnings in the retirement scheme. The funds which are directed to the retirement scheme attract an interest of 3.5 percent compounded annually. Each month I had to make a contribution towards my retirement scheme. Taxes have a significant effect on the amount of retirement savings that is saved by someone. Some of the accounts attract charges in form of taxes. It is important that the type of account be considered to ensure that accounts that are used for saving retirement funds attract minimal charges.

Paper For Above instruction

Retirement planning is a crucial aspect of financial management, encompassing strategies that ensure financial security during one's retirement years. The fundamental goal is to accumulate sufficient funds over time to support a comfortable lifestyle post-retirement, taking into account inflation, expected expenses, and potential income sources. This paper discusses personal retirement planning strategies, the importance of diversified income streams, and the application of financial theories such as compound interest and investment growth projections to achieve long-term financial goals.

Introduction

Retirement is an inevitable phase of life that requires careful planning and disciplined saving. Starting early, as demonstrated by an individual beginning to save at age 20, significantly enhances one’s ability to accumulate wealth through the power of compounding. The primary challenge lies in balancing current expenses with future needs while managing various income sources, including employment, rental properties, and private contracts. Efficient management of these sources, coupled with strategic investments, can create a sustainable financial framework for retirement.

Individual Retirement Savings Plan

The individual’s current savings stand at $10,000, with an annual growth rate of approximately 3.5%. Setting a consistent savings goal of $10,000 per year over 30 years aligns with the principle of regular contributions to retirement funds. The plan to increase annual savings to $15,000 between years 5 and 15 reflects an adaptive approach, considering career progression and income growth. The application of compound interest formulae illustrates how the investment grows over time:

FV = PV (1 + r)^n

Where FV is the future value, PV is the present value or annual contribution, r is the annual interest rate (3.5%), and n is the number of years. Over time, these contributions accumulate, magnified by interest, emphasizing the importance of early and consistent saving.

Income Diversification and Additional Income Streams

Beyond employment income, rental and private contracting income play crucial roles in retirement planning. The rental property generates net income of $12,000 annually, which is projected to grow at an average rate of 2.5% over the next decade, subsequently increasing at 3.3% between years 10 and 15. These growth rates account for inflation and market appreciation. The strategy of saving rental income for 15 years to acquire additional property illustrates targeted capital accumulation leading to further income streams through rent.

Similarly, private contracts, currently yielding $15,000 annually, are expected to grow at 4% annually. These projections reinforce the importance of leveraging multiple income sources, each with their own growth rates, to enhance retirement savings and mitigate risks associated with dependence on a single income stream.

Application of Financial Principles

The use of compound interest calculations guides retirement planning by demonstrating how investments accumulate over time. Contributing regularly to retirement accounts at a 3.5% interest rate compounds the savings, exponentially increasing the corpus by the time of retirement. Furthermore, strategic adjustments, such as increasing annual savings during employment, optimize the final retirement fund value.

Tax considerations significantly influence the net growth of retirement savings. Selecting tax-efficient accounts, such as Roth IRAs or similar vehicles, minimizes taxation on returns and withdrawals, thereby maximizing retained earnings. Since taxes can diminish the growth of retirement funds, it's vital to choose accounts with favorable tax treatment.

Conclusion

Effective retirement planning involves disciplined savings, diversification of income streams, and strategic investment choices. Early start and consistent contributions leverage compound interest, while diversification reduces reliance on a single income source and spreads risk. Tax-efficient retirement accounts further enhance accumulated wealth. By implementing these principles, individuals can secure their financial future, ensuring stability and comfort throughout retirement years.

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