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Submitted by: Puthan(VJ) Vijayan
Puthan(VJ) Vijayan is the Principal member of PMV Investment Advisors, LLC. The firm is a Registered Investment Advisor. VJ is a Certified Estate Planner and Registered Financial Consultant, with over 15 years of planning and investment experience.
JUNE 1,2007
ORIGINAL RESEARCH PAPER AUTHORED BY:
LELAND V GUSTAFSON PH.D.,UNIVERSITY OF WEST GEORGIA
DAVID J BOLDT PH.D., UNIVERSITY OF WEST GEORGIA
BRUCE M BIRD J.D.;M.S.(TAXATION),CPA;UNIVERSITY OF WEST GEORGIA
ORIGINAL RESEARCH PAPER APPEARED IN THE JOURNAL OF PERSONAL FINANCE VOLUME 4,ISSUE 3 2005,COPYRIGHT IARFC ALL RIGHTS OF REPRODUCTION IN ANY FORM RESERVED.
YOU MUST KNOW BY NOW THAT I AM NOT THE AUTHOR, BUT I WILL PRESENT THE ABSTRACT AND THE SECTION-FACTORS AFFECTING SAVINGS AND RETIREMENT.
ORIGINAL ARTICLE ABSTRACT-ARTICLE TO DEVELOP A MODEL TO DETERMINE WHAT PERCENT OF AN INVESTOR'S INCOME SHOULD BE SAVED AND INVESTED IN ORDER TO PROVIDE FOR A COMFORTABLE RETIREMENT.WHEN DETERMINING HOW MUCH MONEY TO SAVE AND INVEST EACH YEAR,AN INVESTOR MUST ACCOUNT FOR SUCH FACTORS AS:
1)THE RATE OF RETURN ON INVESTMENT
2)THE RATE OF INFLATION
3)THE RATE OF CHANGE IN AN INVESTOR'S SALARY AND IN OTHER SOURCES OF INCOME
4)THE NUMBER OF YEARS UNTIL RETIREMENT
5)THE NUMBER OF YEARS IN RETIREMENT
6)THE PERCENT OF PRE-RETIREMENT INCOME THAT AN INVESTOR DESIRES TO TAKE AS WITHDRAWALS UPON RETIREMENT
7)THE PERCENT OF RETIREMENT INCOME COMING FROM PERSONAL SAVINGS
READERS INTERESTED IN DETERMINING THE IMPACT ON SAVINGS RATES USING VARIOUS ASSUMPTIONS MAY DO SO BY ACCESSING A WEB BASED SAVINGS RATE CALCULATOR DEVELOPED BY THE CO-AUTHORS.
THE OUT PUT OF THIS MODEL IS HIGHLY USEFUL AS IT INDICATES THE PERCENT OF INCOME NEEDED TO BE SAVED TO REACH SPECIFIC RETIREMENT GOALS.
WEB BASE MODEL CAN BE FOUND ON THE WORLD WIDE WEB-HTTP://WWW.WESTGA.EDU/~LVG/CGI-BIN/RETIRE/FORM2.PL.
I AM GOING TO FOCUS ON THE FACTORS AFFECTING SAVINGS AND RETIREMENT-THE TIMING OF AN INVESTOR'S SAVINGS AND RETIREMENT HAS A SIGNIFICANT EFFECT UPON THE REQUIRED SAVINGS RATE.THE ARTICLE HAS A TABLE THAT ILLUSTRATES THE INTERPLAY BETWEEN THE AGE AT WHICH AN INDIVIDUAL BEGIN SAVINGS FOR RETIREMENT AND THE INVESTOR'S AGE AT RETIREMENT.FOR EXAMPLE,ASSUMING A RATE OF RETURN ON INVESTMENT OF 8% PER YEAR AND BOTH AN INFLATION AND CINCOME GROWTH RATE OF 3% PER YEAR,A 35 YEAR OLD INVESTOR WHO DESIRES TO HAVE A RETIREMENT INCOME BEGINNING AT 70% OF HIS PRE-RETIREMENT INCOME AND LASTING UNTIL AGE 90 WOULD NEED TO SAVE 15.4% OF HIS /HER INCOME PER YEAR UNTIL AGE 65.
HOWEVER BASED UPON ASSUMPTIONS,HAD THE INVESTOR BEGUN SAVING AND INVESTING FIVE YEARS EARLIER AT AGE 30, THEN HE/SHE WOULD HAVE NEEDED TO SAVE ONLY 11.4% OF INCOME FROM AGE 30 TO AGE 65 IN ORDER TO PROVIDE FOR A COMFORTABLE RETIREMENT UNTIL AGE 90.STATED ALTERNATIVELY,BY BEGINNING THE SAVINGS PROCESS FIVE YEARS EARLIER, THE INVESTOR'S REQUIRED SAVINGS RATE WILL DECREASE BY 26%.
SHOULD THE 35 YEAR OLD INVESTOR DECIDE TO DELAY RETIREMENT FROM AGE 65 TO 70, THEN HIS/HER REQUIRED SAVINGS RATE WILL DECREASE FROM 15.4% TO 10.1% PER YEAR OR 34%.
WHILE IN BOTH CASES THE INVESTOR WILL SAVE FOR 35 YEARS, THE 30 YEAR OLD ,AT AGE 65, WILL WITHDRAW FUNDS FROM RETIREMENT FOR ONLY 20 YEARS.
THIS EXERCISE ALSO ILLUSTRATES THE DRAMATIC EFFECTS OF A LOWER EXPECTED RATE OF RETURN ON INVESTMENT.FOR EXAMPLE, IF THE EXPECTED RATE OF RETURN IS ASSUMED TO BE 8 PERCENT,A 35 YEAR OLD WILL NEED TO INVEST 11.1 PERCENT OF INCOME TO ACHIEVE A COMFORTABLE RETIREMENT.
HOWEVER, IF THE RATE OF RETURN ON INVESTMENT IS ASSUMED TO BE JUST 6 PERCENT, THE SAME INDIVIDUAL WOULD HAVE TO SAVE 20 PERCENT OF HIS/HER INCOME FOR 30 YEARAS TO EXPECT A COMFORTABLE RETIREMENT INCOME BEGINNING AT AGE 65.
FOR ANYONE PLANNING FOR RETIREMENT ,DETERMINING HOW MUCH OF CURRENT INCOME TO DEVOTE TO SAVINGS, IS A VERY DIFFICULT DECISION.THE MODEL DEVELOPED, WITH ALL ITS LIMITATIONS, THE MODEL PROVIDES A HELPFUL TOOL FOR RETIREMENT PLANNING AND CAN BE USED BY INVESTORS AT ANY AGE TO DETERMINE THE SAVINGS REQUIRED TO MEET SPECIFIC RETIREMENT INCOME GOALS.
THIS EXCERPT DELIVERED BY:
PUTHAN(VJ) VIJAYAN CEP RFC MBA
PMV INVESTMENT ADVISORS,LLC
FIDUCIARY ADVISORS
INDEPENDENT FEE BASED CAPITAL & WEALTH MANAGEMENT
20720 WATERTOWN ROAD
#106,
WAUKESHA, WI 53186
262 754 1672
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