In: Finance
Discuss the advantages and disadvantages to a young employee of the following options for retirement planning: (1) relying on Social Security only, (2) relying on a personal investment plan, (3) combining Social Security with a personal investment plan.
Social Security Only | Personal Investment Plan | Social Security+Personal Investment Plan | |
Advantages | Government decides interest rate and contribution amount. Hence, no engagement from your side | You decide everything. You take decision from investment into securities as per your choice and the expected return from the security, tenure etc. Hence, freedom of choice. | Here Government does social security and you also do investment plan. Hence, your engagement is there and also government does the rest. |
Your social security investment is safe with government. | You can increase your return by choosing good security. | Your portfolio is getting diversified with your own investment plan and also the social security. | |
Disadvantages | Your retirement portfolio is limited to the extent of social security corpus only. | Your own decision can be a risky investment. | You need to balance the investment amount between this 2 investment plan. |
Return is limited but risk is least. | Return is unlimited but risky. | Return is modest and with moderate risk. |