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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.
SAVING FOR RETIREMENT:IMPLICATIONS OF THE RESERVATION WEALTH MODEL
AUTHORED BY CHARLES B. HATCHER PH.D;U.OF WISCONSIN,MADISON
ORIGINALLY PRINTED IN THE JOURNAL OF PERSONAL FINANCE 2005,INTERNATIONAL ASSOCIATION OF REGISTERED FINANCIAL CONSULTANTS
VOLUME 4, ISSUE 3.
ABSTRACT:
THE PAPER EXPRESSES THE EXPLORATION OF ISSUE OF SAVINGS ADEQUACY FOR RETIREMENT THROUGH POST RETIREMENT CONSUMPTION CHANGES WHEN A PERSON EXPERIENCES A CHANGE IN EARNINGS OR WAGES.
THE AUTHOR FOUND THAT MEN AND WOMEN,MARRIED AND SINGLE HAVE SIMILAR
REACTIONS TO SUCH CHANGE, BUT THEY ARE SMALLER THAN WHAT IS RECOMMENDED IMPLICITLY BY FINANCIAL PLANNERS.
THE AUTHOR ALSO FOUND THAT MARRIED WOMEN RESPONDED VERY DIFFERENTLY TO CHANGES IN THEIR HUSBAND'S EARNINGS WHEN IT COMES TO THEIR OWN PLANNING FOR RETIREMENT, THAN SAME HUSBANDS RESPOND TO CHANGES IN THEIR WIFE'S EARNINGS.
HOW MUCH DOES SOMEONE NEED TO SAVE FOR RETIREMENT?
DOES THAT AMOUNT CHANGE DEPENDING ON HOW MUCH MONEY YOU EARN?
IF IT DOES, HOW DOES IT CHANGE?
ANYONE PLANNING FOR RETIREMENT , OR HELPING OTHERS DEVELOP A PLAN, HAS STRUGGLED WITH THESE QUESTIONS IN ONE FOR OR ANOTHER.THE PAPER EXPLORES THESE ISSUES BY EXAMINING HOW AN INDIVIDUAL'S DESIRED WEALTH AT RETIREMENT IS BASED ON THE SUBJECTIVE RETIREMENT CONSUMPTION NEEDS OF THE INDIVIDUAL
THE PAPER DISCOVERED THAT WHEN IT COMES TO RETIREMENT PLANNING, MOST
AMERICAN WORKERS DON'T CHANGE THEIR RETIREMENT PLANS IN RESPONSE TO CHANGES IN THEIR INCOME, EITHER POSITIVE OR NEGATIVE,AS MUCH AS THE FINANCIAL PLANNING LITERATURE SUGGESTS SHOULD.
MARRIED MEN AND WOMEN HAVE VERY DIFFERENT RESPONSES TO ACHANGE IN THE WAGES OR SALARY OF HIS OR HER SPOUSE, WHICH SHEDS SOME LIGHT ON THE WAY MEN AND WOMEN VIEW RETIREMENT DIFFERENTLY.
ATYPICAL STRATEGY IN FINANCIAL PLANNING GOES SOMETHING LIKE THE FOLLOWING:FIRST ,DECIDE ON THE AGE OF RETIREMENT;SECOND,ESTIMATE YOUR POST RETIREMENT INCOME NEEDS;THIRD,SAVE ENOUGH TO MAKE THIS PLAN FEASIBLE.
MOST FINANCIAL PLANNERS ASSUME THAT POST RETIREMENT INCOME NEEDS ARE GENERALLY 75% TO 90% OF PRE-RETIREMENT CONSUMPTION.IT IS ALSO FOUND THAT MANY EXPENSES, INCLUDING CLOTHING AND TRANSPORTATION GO DOWN ONCE YOU STOP WORKING.
IS THE 75% RULE A REALISTIC GOAL FOR MOST AMERICAN HOUSEHOLDS?
IF THE 100% RULE IS USED,-PRE-RETIREMENT EQUAL POST-RETIREMENT CONSUMPTION,IT IS ESTIMATED THAT THE AVERAGE HOUSHOLD WOULD HAVE TO SAVE NEARLY 3 TIMES WHAT THEY ARE CURRENTLY SAVING TO FUND THAT RETIREMENT.
THE 1992 SURVEY OF CONSUMER FINANCES IS USED TO CALCULATE,FOR EACH HEAD OF HOUSEHOLD AND HIS OR HER SPOUSE THE AMOUNT OF WEALTH WITH WHICH INDIVIDUALS RETIRE.AN INDIVIDUAL WHO MAKES $1 MORE PER YEAR SHOULD INCREASE THEIR EXPECTED RETIREMENT WEALTH SUCH THAT THEY WILL HAVE 75 CENTS PER YEAR FOR CONSUMPTION IN RETIREMENT, HOLDING ALL OTHER INFLUENCES CONSTANT.
PUTHAN(VJ) VIJAYAN CEP RFC MBA
PMV INVESTMENT ADVISORS,LLC
FIDUCIARY ADVISORS
INDEPENDENT FEE BASED CAPITAL & WEALTH MANAGEMENT
20720 WATERTOWN ROAD
SUITE 106
WAUKESHA, WI 53186
262 754 1672
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