Question

3. In recent days, governments around the world are seeking to extend retirement age as the productive segment of workers are approaching decline in an aging demographic. In personal wealth planning, individuals focus on the time horizon for short-term, intermediate-term, and long-term goals. Postulate the outcome in the imposition of such policies and its outcome. How can individuals cope with changes in such policy changes? (300 words)

Answer 1

Due to aging demography, the government is taking such steps in order to let the productive workers work beyond the retirement age. In such a situation, it becomes critical to undertake flexible personal wealth planning. Such policies can make individuals work longer leading to more income beyond the retirement age. In this case, a person, for eg. was supposed retire at the age of 60, had financially planned to get pension after the age of 60, but he/she would still be working and earnings. In such a scenario, individuals need to adopt a flexible scheme of retirement planning which would give them flexibility to defer pension for a few years and continue to contribute towards the pension plan. The impact of any such policy change is most felt on long-term goal planning and this is the type of planning which needs to be customized the most for such policy changes.

Individuals need to invest in various asset classes as part of their retirement planning. The most critical part would be to assess if the instrument in which investment is undertaken gives a certain amount of flexibility or not. This is because when retirement policy changes, individuals can adopt an approach according to the need of the times. Since policy changes are unpredictable and long-term personal wealth planning should not be rigid, in the sense that there should be asset classes in the investment which could be liquidated in an interval and not at a specific time. The individuals who are already in a long term plan, need to undertake a short-term plan if they continue after retirement. Let's say an individual working for 4 years after retirement, needs a short term wealth planning to invest the saving of the excess years worked in order to plan further his/her retirement in a better way possible.