Question

In: Finance

Discuss the advantages and disadvantages to a young employee of the following options for retirement planning:...

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.

Solutions

Expert Solution

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.

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