Synopsis On

Investor’s Strategy towards Retirement Planning in Private Sector

Submitted To Lovely Professional University

In partial fulfillment of the requirements for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted By: Supervisor:

Group No:- F 39 Abhishek Chaudhry (15672)

Aijaz Ahmad Thoker (11100488) Assistant professor

Priyanka Kumari (11100597) LPU

Sangeet Choudhary (11104463)

Vinita Grover (11107522)

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY

PHAGWARA

PUNJAB

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CERTIFICATION APPROVAL BY FACULTY ADVISOR

TO WHOM IT MAY CONCERN

This is to certify that the project report titled “Investor’s Strategy Towards Retirement

Planning in Private Sector” carried out by Mr. Aijaz Ahmad Thoker, Ms. Priyanka Kumari,

Mr. Sangeet Chaudhry, Ms. Vinita Grover has been accomplished under my guidance &

supervision as a duly registered MBA students of the Lovely Professional University, Phagwara.

This project is being submitted by them in the partial fulfillment of the requirements for the

award of the Master of Business Administration from Lovely Professional University.

This dissertation represents their original work and are worthy of consideration for the award of

the degree of Master of Business Administration.

Mr. Abhishek Chaudhry(15672)

(Name & Signature of the Faculty Advisor)

Date:

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DECLARATION OF AUTHENTICITY BY STUDENTS

DECLARATION

We hereby declare that the work presented herein is genuine work done originally by us and has

not been published or submitted elsewhere for the requirement of a degree program. Any

literature, data or works done by others and cited within this dissertation has been given due

acknowledgement and listed in the reference section.

Aijaz Ahmad Thoker Priyanka Kumari

(Student's name & Signature) (Student's name & Signature)

(11100488) (11100597)

Date: Date:

Sangeet Choudhary Vinita Grover

(Student's name & Signature) (Student's name & Signature)

(11104463) (11107522)

Date: Date:

3

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ACKNOWLEDGEMENT

We would like to thank our parents for their support and blessings through our life. We take this

opportunity to thank all those guidepost who really acted as lightening pillars to enlighten their

way throughout this project that has led to successful and satisfactory completion of this study.

We would like to thank our friends and family for the moral support and ideas to go through in

details.

We are very thankful to our supervisor, Mr. Abhishek Chaudhry, whose support from the

initial day till the end allowed us to develop a good understanding of the subject. Last but not

least, we would like to thank God who has helped to achieve and overcome all the obstacles.

Thank you

Aijaz Ahmad Thoker

Priyanka Kumari

Sangeet Choudhary

Vinita Grover

WORK PLAN

S.NO Tasks Start Date End Date

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1 Study of topic(Introduction) 25/10/2012 31/10/2012

2 Work on Literature Review 1/11/2012 12/11/2012

3 Work on research Methodology 13/11/2012 20/11/2012

4 Work on Tentative report 20/11/2012 24/11/2012

5 Work on Questionnaire 25/11/2012 15/12/2012

6 Filling of

Questionnaire(Research)

7/1/2013 15/1/2013

7 Analysis and Interpretation of

data collected

16/1/1013 20/2/2013

8 Work on Suggestions/

Recommendations

21/2/2013 18/3/2013

9 Documentation of final report 19/3/2013 31/3/2013

TABLE OF CONTENTS

Chapter No. Contents Page No.

1. Introduction 8

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1.1

1.2

1.3

1.4

1.5

1.6

Retirement planning in India

Retirement planning tips in India 2012-2013

Benefits for private sector workers

Investment vehicles/plans

Investment strategies

Withdrawal strategies

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12

13

15

20

22

2. Review of Literature 25

3.

3.1

3.2

3.3

3.4

Present work

Need and Scope of study

Objectives

Research methodology

Expected outcome of the study

38

38

39

40

4. Conclusion 41

5. References 42

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CHAPTER 1

INTRODUCTION

INTRODUCTION

Retirement means different things to different people.  To some it might bring a blessed release

after the hectic earning years.  A time for relaxation, peace, and a time of indulging in all the

activities that got missed out before.

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 But for most, retirement conjures up a scary picture – a time of financial insecurity, of having to

cut down on most things that one took for granted before, having the constant worry of

compromising on the standard of living that one was used to before, and being financially

dependent one’s children.

Due to the various challenges and risks associated with retirement, we recommend retirement

planning should be given its due importance and starts as soon as possible. To make retirement a

truly enjoyable time, one needs to plan ahead.  The most common mistake is either not planning

for your retirement or leaving it to the last possible moment.

Retirement Planning Works in 3 Steps – Accumulation – Preservation - Distribution.

Accumulation is the stage where we invest to generate a decent corpus which is assumed to take

care of us during retirement years. This accumulation we do till retirement.

In Preservation stage we become cautious about our accumulated corpus and we start coming

out of risky asset classes and start shifting the corpus into debt, though savings doesn’t stop

during this stage also, as our regular income stream is intact.

Distribution is the stage when we make arrangements to use the corpus through interest,

dividends and withdrawing capital which we have accumulated. In the complete retirement

planning, distribution is the most important of all, as all our efforts of accumulation and

preservation were directed towards this stage only. With a regular income stream no longer

available, the savings made over one’s working years now have to provide for all needs. Now

your investments need to create a pay cheque for you. In accumulation and preservation stages

the mistakes can be ignored as you were getting regular income, but at distribution stage, small

mistakes can cost huge.

1.1 RETIREMENT PLANNING IN INDIA:

In our country, where a very small number (less than 10% of the workforce which is in the

organized sector) has access to some social security like provident funds, but the rest – almost

90% of the workforce – has no social security, Retirement Planning is a major issue. If you

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take care of your retirement planning, your future will probably be much better and in control

than without doing anything. It has become extremely important to plan for one’s retirement and

at least take a step towards it. We are going to list down some pointers which shows why

retirement in future India will be much bigger and serious issue. Look at all the points in totality

and you will realize that planning for retirement is not just an option but a necessity these days.

1. Increase in life expectancy in India

One of the major problems while doing retirement planning is to assume how long the retirement

will last. This has a direct relation with life expectancy. As a country develops, its healthcare and

overall life style level improves and life expectancy increases. You can see the life expectancy in

India is moving up and up with each passing decade. It was 49 yrs in year 1970, increased to 64

yrs today in 2011 and is set to increase up to 73-76 yrs in 2040-50 (projections).

Now this life expectancy of 76 yrs does not mean that everyone will die at age 76, it’s an

average. If you personally have a better life style, better health and better medical access

compared to a average Indian, chances are you will have a much more life expectancy which will

cross 85-90 yrs . Leave future, even today you can see more and more people living up to an age

of 80-85. So, you can safely assume that you will have to accumulate enough money which can

last at least 30-35 yrs after your retirement, else make sure you die with your money itself.

Overall the conclusion is “Longer life in future will mean more money required in retirement

compared to today. Simple!”

2. Increase in Dependency Ratio

Dependency ratio means the ratio of Old age population vs. Young population. To calculate it,

just take total population above Age 60 and divide it with population between 15 yrs – 60 yrs and

you will get Dependency Ratio. You will be surprised to know that right now in 2011, the

dependency ratio is around 5% in India, but in year 2050 this ratio will rise to 15%, which shows

you that more and more people are going to be in the old age group compared to young

population. See the chart below:

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This is not a small issue. More and more people will be shifting to this “retired” category in

coming decades with more loads on the working population. At this current moment, we are one

of the youngest countries today with as high as 50% population below 25 yrs of age, but will this

continue forever? With more population control measures at government and public level, these

numbers are going to be different in future. Hence the conclusion is “More and more people will

come into retired category as percentage of population in coming future”.

3. Decline of joint family structure

If it was 1970, you could have safely assumed that you will be probably spending your

retirement with your grown up kids, playing with your grand children, but is it happening

anymore in these changing times? More and more people are moving in different parts of

country in search of education, jobs and settling their compared to old times. Parents on the other

hand don’t choose to move most of the times as they feel connected to the same place where they

have spend all their life and more than that , they have their social groups at those native places.

Very rarely I have seen that parents leave those places where they have spent 30-50 yrs of their

life.

Bigger opportunities in life and a complex life style have resulted in smaller family size and it’s

going down each decade. As per research reports of National Family Health Survey , Ministry of

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Health and Family Welfare (MOHFW), Government of India, average household size in the year

1992 was 5.7, which means each family had 5.7 members, this came down to 5.4 in 1998 and as

per last reports of 2007, average family size is 4.8. Now imagine this, each family having approx

4.8 members, that’s today! Will it shrink further to 4.0 in coming decades, what do you think?

I think if it does not go down, it will definitely not go up! That my personal opinion. So the

conclusion is “There are higher chances that you will be living separately and not with your

kids, by choice or by society structure, unless you are living in smaller towns and villages.”

4. Change in perception about Retirement Planning

In a poll 83% said that they would like to be self-dependent and want to save all the money they

would require in their retirement. Around 10% said that this is the first time they are having any

thoughts about their retirement after seeing the poll and just 7% people expect to be fully or

partially dependent on their children for their retirement. Which shows us that as high as 93%

readers on this blog who participated in the poll want to be self dependent and plan their

retirement themselves? Look at the poll results below.

1.2 RETIREMENT PLANNING TIPS IN INDIA 2012-2013

Retirement Planning Tips in India 2012-2013: People have different plans for retired life. For

example you may think of retirement as a time to relax, to laze around, to spend more time with

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family, travel or write a masterpiece. Attaining financial independence after retirement will not

be just a dream if the following steps are followed with steady discipline, perseverance and if

smart investment strategies.

Start saving early: Nobody takes retirement seriously. But the fact is that even a small

sum of money saved regularly and invested regularly makes a big amount which will

come in very handy after retirement. One should not believe that after retirement, one can

place all savings into income generating investment and spend rest of life in happiness.

Retirement should be your top priority: Retirement should be kept as a top priority

because if one does not keep it at the top one might end up depending on one's children,

which probably no one would relish.

Create a Retirement Plan: Develop a plan for saving based on your requirements at the

time of retirement. The goals you keep for saving depend on your lifestyle but you will

need at least about 66% of your pre-retirement income to maintain your standard of living

when you stop working.

Understand your Pension Plan: If your employer offers pension plan, understand

carefully your benefit level, financial stability of plan and the vesting period. Use

retirement plans even if you already have enough money. With retirement plans your

money grows in a tax efficient manner and compounding interest over time makes it one

of the best investment options.

Balance your risk tolerance and your investment strategy: Evaluate your risk profile

and then balance your investment strategy to invest in various avenues to get the most out

of your retirement money keeping your risk profile unhampered.

Diversify your investments & allocate your assets carefully: Depending on your work

profile divide your savings into equity, bonds, Mutual Funds, and other investment

avenues. Don't invest too heavily in one sector or one company, since the risk associated

with putting all your eggs in one basket is indeed very high.

1.3 BENEFITS FOR PRIVATE SECTOR WORKERS

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Superannuation:

Superannuation Fund is a retirement benefit given to employees by the Company. Normally the

Company has a link with agencies like LIC Superannuation Fund, where their contributions are

paid. The Company pays 15% of basic wages as superannuation contribution. There is no

contribution from the employee. This contribution is invested by the Fund in various securities as

per investment pattern prescribed. Interest on contributions is credited to the members account.

Normally the rate of interest is equivalent to the PF interest rate. On attaining the retirement age,

the member is eligible to take 25% of the balance available in his/her account as a tax free

benefit. The balance 75% is put in a annuity fund, and the agency (LIC) will pay the member a

monthly/quarterly/periodic annuity returns depending on the option exercised by the member.

This payment received regularly is taxable. In the case of resignation of the employee, the

employee has the option to transfer his amount to the new employer. If the new employer does

not have a Superannuation scheme, then the employee can withdraw the amount in the account,

subject to deduction of tax and approval of IT department, or retain the amount in the Fund, till

the superannuation age. Normally Companies do not extend the Superannuation benefits to all

employees- but only to a specific category of employees - like for example Level-1 of Managers

onwards.

Gratuity:

Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for

the services offered by the employee in the company. Gratuity is a defined benefit plan and is

one of the many retirement benefits offered by the employer to the employee upon leaving his

job. An employee may leave his job for various reasons, such as - retirement/superannuation, for

a better job elsewhere, on being retrenched or by way of voluntary retirement.

Eligibility:

As per Sec 10 (10) of Income Tax Act 1961, gratuity is paid when an employee completes 5 or

more years of full time service with the employer.

Tax treatment of Gratuity

The gratuity so received by the employee is taxable under the head ‘Income from salary’. In case

gratuity is received by the nominee/legal heirs of the employee, the same is taxable in their hands

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under the head ‘Income from other sources’. This tax treatment varies for different categories of

individual assessee. We shall discuss the tax treatment of gratuity for each assessee in detail.

In case of government employees – they are fully exempt from income tax arising on from

receipt of gratuity. In case of non-government employees covered under the Payment of Gratuity

Act, 1972 – Maximum exemption from tax is least of:

I. Actual gratuity received; or

II. Rs. 10, 00,000; or

III. 15 days’ salary for each completed year of service or part there

1.4 INVESTMENT VEHICLES/PLANS

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Provident Fund:

There are many investment vehicles in our country for the purpose of saving for one’s

retirement. But the most popular one among them has been ‘Provident Fund’. For a long time,

provident fund has been the primary investment vehicle for saving for an individual’s retirement

nest until the entry of mutual funds and other new innovative products such as ULIP (Unit

Linked Insurance Policy), ULPP (Unit Linked Pension Policy) etc.

Provident fund can be considered as a debt instrument as majority of the corpus is invested in

debt.

How it works?

On maturity – Employee gets his contribution + Employer’s contribution and interest

accrued thereon on maturity and/or before maturity (due to pre-mature withdrawal, death of

the deposit holder etc.)

On death of the deposit holder before maturity – In case of death of the deposit

holder/employee, the sum so accumulated is paid to the legal heirs.

Annuities

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A fixed sum (%) is deducted

from employee’s salary as

contribution to Provident Fund

Employer also contributes his

share to the Provident Fund

(Except Public Provident Fund).

The pooled sum is invested in

Various instruments and majority in

debt

An annuity is a contract between the insurer and an individual whereby the insurer agrees to pay

a specified amount in future in exchange for the money now paid by the individual. It is an

investment that you make, either in a lump sum or through installments over a specified period

of time (called the ‘accumulation period’), in return for which you receive a specific sum at

regular intervals (either annually, semi-annually, quarterly or monthly), either for life or for a

fixed number of years.

By buying an annuity or a pension plan the annuitant receives guaranteed income for the period

as specified in the policy. Annuities are also popularly known as ‘pension plans’. This is because

they are typically bought to generate regular income during one’s retired life. Annuities can be

viewed as a solution to one of the biggest financial insecurities of old age; outliving one’s

retirement corpus. The period when you are investing is called ‘accumulation phase’. In return

for the investment, the annuitant receives back a specific sum every year, every half year or

every month, either for life or a fixed number of years. This period when the annuitant receives

the payments is known as the ‘distribution phase’. Generally, one opts to receive annuity

payments (also known as ‘un commuted payments’) upon retirement. One important aspect is to

make sure that the payments you receive will meet your income needs during retirement.

Some of the common pay out options upon retirement are–

• Receive lump-sum payment of all of the money you have accumulated during your working

years.

• Receive regular payments over a specific period of time.

Types of Pension Plans Including New Pension Scheme (NPS) With Its Features

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The two most common types of pension plans are the defined contribution (or the money

purchase plan) and the defined benefit plan. Sometimes these two plans are combined and the

combination is thus known as hybrid plans or combination plans.

Defined Benefit (DB) plans:

In these kinds of plans, the benefit to be paid to the employee is defined or fixed at the beginning

of the plan, e.g. final year’s salary multiply by number of years of service. Here the employer

funds the plan and the employee reaps the rewards upon retirement. The employer has to use

actuarial assumptions like retirement age, mortality, expected life span, expected compensation

increase and other demographic assumption to estimate the pension liability and accordingly

contribute in the pension plan. From an employer’s perspective, defined-benefit plans are an

ongoing liability. Returns on the plans are assumed and estimated in such a way to get the

desired payout to the employee. The funding for these plans must come from corporate earnings

– which affect the company profits. The impact on profits can weaken a company’s ability to

compete. Moreover the demographics or the assumptions keep changing hence companies all

around the world are slowly shifting the burden towards employees by introducing ‘defined

contribution plans’. The investment risk is borne by the employer in the defined benefit plan.

Defined Contribution (DC) plans:

This is also known as ‘money purchase plan’. Under this plan, the contribution to the pension

plan by the employee is fixed (say 12% of salary) and the same is matched by the employer. The

money is placed in the investment instruments selected by you in your investment account. After

you retire, these investments along with interest are used to buy pension or annuity.

However, under DC plan, one cannot be sure of the final pension amount at retirement.

Ultimately, the pension benefit that you are going to receive after your retirement will depend

upon the performance of the investment made on your behalf. Unlike a defined-benefit plan,

where the employee knows exactly what his or her benefits will be upon retirement, there is no

such certainty regarding investments in a defined-contribution plan. After the money is pooled

into the retirement account, it’s up to the uncertainties of the investments to determine the final

outcome.

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Apart from pension plans of employers, there are two broad categories of pension plans from life

insurers - Traditional endowment policies and unit-linked policies. They differ primarily in the

way the money of the policyholder is invested and grows during the accumulation phase. A

traditional plan invests primarily in debt instruments. The buyer needs to choose a sum assured

that becomes his maturity corpus if he survives the term. Over and above this guaranteed corpus,

he would get loyalty additions and bonuses which the company would declare from time to time.

The loyalty addition will be declared for the policy holder based on the period for which he has

paid the premium amount even in case of death. Bonus is the amount given to the policy holder

apart from their maturity or death benefits. The additions depend on the performance of the

company and its profits. If the policyholder dies before the plan’s maturity, the nominee gets the

sum assured plus the additions. On survival, the policyholder gets the sum assured plus the bonus

and loyalty additions for investing in the second stage.

Mutual funds also have started offering pension plans, which are also targeted towards saving for

one’s retirement. These are debt-oriented balanced funds that take equity exposure of up to 40

per cent and invest the balance in debt instruments. Though they are hybrid in nature, their equity

exposure is much lower than balanced funds that invest up to 65 to 70 percent in equity.

Other pension plans for private players:

Nowadays there are a number of private insurance players in the market. All of them generally

provide two types of pension plans - with life cover and without life cover. However the

Insurance Regulatory body IRDA has proposed mandatory life cover with Pension products. The

‘with life cover’ pension plans offer an assured life cover in case of an eventuality, even if the

corpus built till the date of death happens to be below that amount.

Under the ‘without cover’ pension plan, the corpus built till the date of death (net of deductions

like expenses and premiums unpaid) is given out to the nominees in case of an eventuality, with

no sum assured. The taxability of a pension plan is determined in two stages. The first is at the

time of making annual premium payments and other at the time of maturity. Premium payments

towards pension plans are eligible for deduction under Section 80C of Income tax Act 1961. The

overall limit for deduction under Sections 80C and 80C is Rs 1 lakh. In other words, one is

eligible for same tax deduction for the premium amount paid for; with or without life cover

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pension plans. At the time of maturity, the commuted value of the pension (lump sum amount)

which is received from a life insurance plan is tax-free.

However, the monthly pension amounts are fully taxable and included in one’s taxable income,

irrespective of whether or not the policy holder claimed the deduction under Section 80C or

Section 80C at the time of payment of premium.

Reverse Mortgage:

A house can generate money by way of rent, which improves one’s financial situation. This is

the reason why the concept of ‘Reverse Mortgage’ was introduced. Although reverse mortgage is

a well-developed product in the West 3 decades ago, it is a fairly new concept in India. A reverse

mortgage is a loan available to senior citizens. As its name suggests, it is exactly opposite of a

typical home loan, where repayments are made to the housing finance company (HFC)/ bank

every month until the tenure of the loan. Reverse mortgage is so named because the payment

stream is reversed, that is instead of the borrower making monthly payments to the lender, the

lender makes payments to the borrower. The process is simple. Once you pledge your house for

reverse mortgage with any HFC/ bank, the HFC/ bank estimates the value of the house. Then,

taking into account the cost of credit, it makes monthly payments to you. The loan is typically

settled after the death of the owner/co-owners.

1.5 INVESTMENT STRATEGY:

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Life cycling Strategies:

A lifecycle approach to investing in retirement normally involves reducing the exposure to risky

(or growth) assets in the retiree’s portfolio as he or she ages (or approaches a given target date). A

criticism of this approach is that its pre-programmed schedule (“glide path”) takes no account of

actual investment returns experienced by the retiree and the resultant adequacy of the retiree

assets to sustainably provide for the planned level of drawdown over their remaining lifetime.

But does the strategy of switching out of equities with time, popularly known as lifecycle

investing, benefit investors? Empirical research has generally found that a switch to low-risk

assets prior to retirement can reduce the risk of confronting the most extreme negative outcomes.

Lifecycle investment strategies are also said to reduce the volatility of wealth outcomes making

them desirable to investors who seek a reliable estimate of final pension a few years before

retirement (for example, see Blake, Cairns, and Dowd, 2001). On the other hand, most

researchers note that these benefits come at a substantial cost to the investor - giving up

significant upside potential of wealth accumulation offered by more aggressive strategies (Booth

and Yakoubov, 2004; Byrne et al., 2007). Bodie and Treussard (2007) argue that deterministic

target date funds – as commonly implemented - are optimal for some investors, but not for

others, with suitability depending on the investor’s risk aversion and human capital risk.

A modified approach which aims to address this shortcoming can be called dynamic/smart life

cycling. Under this approach an ideal (target) and worst case (minimum) level annual indexed

drawdown from the retiree’s account is established upfront. The lifecycle glide path is not pre-

programmed in advance but is varied over time based on the size of the retiree’s account balance

(reflecting investment returns achieved on the account) to date and the corresponding sustainable

income (SI) that the account balance is likely to be able to support over the retiree’s future

lifetime. The account will be without risked when the SI approaches the target income (so as to

“lock in” the ideal income), and also when the SI approaches the minimum income (to protect

against income falling below this level). Between these two extremes, the account will take on

more risk based on the relative priorities for attaining target income and avoiding falling to or

below minimum income.

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Various refinements could be added to the basic design — for example, rather than fully

derisking, a minimum level of growth assets (possibly age related) or a constraint on the size of

shifts in allocation in any year, could be applied to reduce transaction costs and to ensure the

retiree retains a risk exposure which is consistent with their remaining investment time horizon.

While dynamic life cycling is more complex than traditional life cycling, it is a more

conceptually sound approach — it produces a glide path appropriate to members’ retirement

income objectives rather than assuming a purely age-based risk tolerance. To apply this approach,

the actual glide path rules would be developed by the trustee taking into account the relative

priorities for attaining target income and avoiding falling to or below the minimum income. If the

dynamic lifecycle option is to be used as a default investment option, the design process would

involve analyzing the profile of future retirees in the default option and determining suitable

target and minimum income levels to be used in setting the glide path.

Dynamic asset allocation strategy is where the switching of assets at any stage is based on

cumulative investment performance of the portfolio relative to the investors’ target at that stage.

Unlike conventional lifecycle asset allocation rules where the switching of assets is preordained

to be unidirectional, this dynamic strategy can switch assets in both directions: from aggressive

to conservative and vice versa.

Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle:

The amount of money, expressed as a percentage or ratio that one deducts from his/her

disposable personal income to set aside as a nest egg or for retirement. The cash accumulated is

typically put into very low-risk investments (depending on various factors such as expected time

until retirement), like a money market fund or a personal IRA comprised of non-aggressive

mutual funds, stocks and bonds.

1.6 Withdrawal Strategies:

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4% Rule:

The first strategy considered is the 4% Rule described above. Stated simply, in the first year of

retirement, a retiree will withdraw 4% from his/her portfolio. The withdrawal amount is adjusted

for inflation in subsequent years throughout retirement. This strategy serves as a baseline for

comparison with other strategies.

Floor & Ceiling Strategy:

The floor and ceiling are defined in real terms based upon the initial withdrawal amount. One

recommendation is to set the floor at 10% below the initial withdrawal amount and the ceiling at

25% above the initial withdrawal amount. In any retirement year, if the planned real withdrawal

amount falls below the floor or exceeds the ceiling, the withdrawal amount is kept at the floor or

ceiling respectively.

Modified 4% Strategy:

This rule specifies that the withdrawal amount in any year should be 4% of the portfolio value in

that year. This will guarantee that the retiree's portfolio will never be depleted, but because the

size of the portfolio will change according to returns, the annual withdrawals will also fluctuate.

This strategy adds the protection that if the portfolio loses value in a particular year, the income

in the next year will be cut to 95% of the prior year's level. The 95% level is used even if the

drop in the portfolio would have prescribed a lower withdrawal. This helps to smooth out major

swings in withdrawals. In subsequent years the assets will continue to be withdrawn at 4%.

Decision Rules Strategy:

The Decision Rules Strategy proposed by Guytonand Klinger uses dynamic rules to guide

withdrawals. The initial withdrawal rate from the retirement portfolio is set at 5.3% and later

grows with inflation subject to decision rules. The decision rules are actions a reasonable retiree

might take under various economic conditions. The articles stated here are slightly modified

from the original research to make them more easily implemented. During retirement, if a year's

portfolio return is negative and the withdrawal rate, as adjusted, would be greater than the initial

withdrawal rate, the withdrawal amount is frozen at the prior year's level. To further protect the

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portfolio, if the withdrawal rate exceeds 6.36% in a given year, then that year's withdrawal is

reduced by 10% from the prior year. This rule is not applied after age 85. Inorder to take

advantage of good economic conditions, if the withdrawal rate falls below 4.24%, then the

withdrawal amount is increased 10% over the prior year.

Safe Reset Strategy:

This strategy from Stein and DeMuth recognizes that a retiree can safely withdraw more later in

retirement than earlier because the retirement portfolio needs to last fewer years. In this strategy,

the withdrawal rate is a function of the retiree's age and adjusted only for inflation for five years

before being reset to a new withdrawal rate determined by the expected number of years

remaining in the person's retirement. The prescribed withdrawal rate is 4.7% with 40 years

remaining in retirement, 5% at 35 years, 5.3% at 30 years, 5.6% at 25 years, 6.4% at 20 years,

7.9% at 15 years, and 8.6% with 10 years remaining in retirement. To protect against poor

economic conditions early in retirement, if the portfolio return is negative in any of the first 10

years, the withdrawal rate is set to 4%.

Aggressive Strategy:

For those retirees wanting to spend more early in retirement rather than later, Klinger proposed

an Aggressive Strategy where the withdrawal amount is defined in real terms and decreases over

the retirement period.'' A smooth aggressive strategy decreases real withdrawals each year by a

set amount. For example, with a $ 1 million portfolio a smooth strategy may start with $53,375

in withdrawals, which would decrease $368 annually in real terms for a 20% drop in the annual

real withdrawal over retirement. (The withdrawal amounts scale proportionately to the portfolio

size.) The annual withdrawal amounts defined this way serve as the maximum allowable real

withdrawal amount in each year. To protect the portfolio against losses, if the portfolio has a

negative return in any year, the next year's withdrawal is reduced by 10%. The real withdrawal

amount in any year is not allowed to fall more than 10% below the maximum for that year.

Alternatively, if economic times are good and the withdrawal rate in any year falls below 3.8%,

the next year's withdrawal is increased by 10%.Any increases in withdrawals are capped at the

maximum real income prescribed for that year.

24

CHAPTER 2

LITERATURE REVIEW

25

REVIEW OF LITERATURE

Lori L. Embrey & Jonathan J. Fox (1997) used a sample of singles drawn from 1995 Survey

of Consumer Finances to explore gender differences in the investment decision-making process.

The determinants of some investment decisions were found to differ by gender, but gender did

not appear to be a critical determinant of investment choice. They find that Women are more

likely to hold risky assets if expecting an inheritance, employed and holding higher net worth;

while men invested in risky assets if they are risk seekers, divorced, and college educated.

However, in the sample of singles drawn from the 1995 Survey of Consumer Finances, gender

did not prove to be the critical determinant of investment choice. In fact, there is no difference in

investment patterns in financial assets attributable to gender. Instead, differences in financial

investment decisions between men and women appeared to be more a result of differences in

wealth as measured by net worth and the expectation of an inheritance. The allocation of total

assets toward housing and businesses did appear to be at least partially determined by gender.

Men and women did appear to make investment in housing and business decisions differently.

Women are investing more in houses if they has receive an inheritance, has a short time horizon,

and are widow and they invested more in businesses if they are widow, has not receive an

inheritance, or are wealthy.

Hugo Benítez Silva & Debra S. Dwyer (June, 2002) examined how a wide array of factors

(household and individual level financial, health and other taste shifter characteristics) influence

retirement plans over time and how uncertainty affects the strategies that individuals use to plan

their retirement years. It was found that people with higher net worth plan to retire earlier

probably because they can afford to. People who can afford private health insurance are also

more likely to plan an earlier retirement. Higher earners are postponing retirement. People who

report themselves in poor health plan to retire later. Using panel data models the role of health

and economic factors on retirement planning using the Health and Retirement Study (HRS) was

examined. Health and socio-economic factors are all factors that influence the formation of

expectations, with health explaining more of the variation. Rationality of plans for retirement

controlling for sample selection was examined. After controlling for sample selection, reporting

biases, and unobserved heterogeneity it was found that plans for retirement followed the random

26

walk hypothesis and pass tests of weak and strong rationality. Then the effects of new

information on plans were examined and the result was that new information contributes little to

changes in plans. This leads us to conclude that on average people correctly form expectations

over uncertain events when planning for retirement.

Joy M. Jacobs-Lawson, Douglas A. Hershey (2005) done a study to explore the extent to

which individuals’ knowledge of retirement planning, future time perspective, and financial risk

tolerance influence retirement saving practices. A total of 270 young working adults participated

in the study. Regression analyses reveal that each of the three variables is predictive of saving

practices, and they interact with one another as well. For those with a short time perspective who

were high in knowledge, the relationship between risk tolerance and saving is only marginally

significant. For those who were both low in time perspective and knowledge, the relationship

between risk tolerance and saving is near zero. Failing to look to the future ensures a minimal

impact of risk tolerance on saving, almost irrespective of how much one knows about financial

planning. Among individuals, high in future orientation and knowledge, risk tolerance has a

relatively small, influence on saving practices. For individuals high in future orientation and low

in knowledge, risk tolerance exerts a relatively strong effect on savings. From a theoretical

perspective, the finding from this study is that future time perspective and risk tolerance interact

with one another to influence retirement saving. From an applied perspective, the findings

suggest that counseling and intervention efforts aimed at promoting retirement saving should

differentially target individuals on the basis of these three psychological dimensions.

David A. Wise (April 2006) studied the shift and explored the conventional wisdom that this

shift increases risk for retirees and will result in lower accumulation of retirement assets. In

particular, it focuses on personal retirement accounts and considers the options available for

retirees to contain risk and assess the likely outcomes over alternative options, including life

cycle allocation. He came with the result that personal retirement accounts better than the

defined benefit pensions by using life cycle strategy.

Annamaria Lusardi & Olivia S. Mitchell (October 2007) did a research that talk about

financial knowledge during workers’ prime earning years when they are making key financial

decisions, and it offers detailed financial literacy and retirement planning questions, permitting a

finer assessment of respondents’ financial literacy than heretofore feasible. Financial literacy is a

27

key determinant of retirement planning. They also found that respondent literacy is higher when

they were exposed to economics in school and to company-based financial education programs.

They also found that education, income, and age are correlated with but do not adequately

capture the full flavor of the financial literacy measures developed here. Second, the fact that

they found more financially literate adults are more likely to plan for retirement complements

other analysts who have sought to link financial sophistication and decision making. For

instance, research showed that financially unsophisticated households tend to avoid the stock

market. The financially unsophisticated are also less likely to refinance their mortgage in a

propitious environment, and they select less advantageous mortgages (Moore 2003). People who

cannot correctly calculate interest rates given a stream of payments, borrow more and

accumulate less wealth. By this their results show that the financially illiterate do not plan for

retirement either.

Anup K. Basu & Michael E. Drew (2007) compared the lifecycle asset allocation strategy with

the contrarian strategy by investors to invest. According to this paper no doubt the strategy used

by employees is lifecycle strategy but it is the contrarian strategy that increases the accumulated

value more. Currently employees invest by lifecycle asset allocation funds. They invest

aggressively to risky asset classes when they are young and gradually switch to more

conservative asset classes as they grow older and approach retirement. This approach focuses on

maximizing growth of the accumulation fund in the initial years and preserving its value in the

later years. Due to this portfolio size effect, we find the terminal value of accumulation in

retirement account to be critically dependent on the asset allocation strategy adopted by the

participant in later years.

Contrarian strategies which switch to risky stocks from conservative assets produce far superior

wealth outcomes relative to conventional lifecycle strategies. This demonstrates that the size of

the portfolio at different stages of the lifecycle exerts substantial influence on the investment

outcomes and therefore should be carefully considered while making asset allocation decisions.

Lifecycle asset allocation strategies focus on two objectives: maximizing growth in the initial

years of investing and reducing volatility of returns in the later years. Our findings suggest that

the bulk of the growth value of accumulated wealth actually takes place in the later years. The

first objective, therefore, has little relevance to the overarching investment goal of augmenting

28

the terminal value of plan assets in. A strategy of switching to less volatile assets a few years

ahead of retirement can only be rationalized if the employee participant has already accumulated

wealth well in excess of their accumulation target a few years before retirement.

Jeffrey R. Brown (October 2007) studied the role of annuities in retirement planning that are

explaining the basic theory underlying the individual welfare gains available from annuitizing

resources in retirement. It then contrasts these findings with the empirical findings that so few

consumers behave in a manner that is consistent with them placing a high value on annuities.

After reviewing the strengths and weaknesses of the large literature that seeks to reconcile these

findings through richer extensions of the basic model, this paper turns to a somewhat more

speculative discussion of potential behavioral stories that may be limiting demand. Overall, the

paper argues that while further extensions to the rational consumer model of annuity demand are

useful for helping to clarify under what conditions annuitization is welfare-enhancing, at least

part of the answer to why consumers are so reluctant to annuitize will likely be found through a

more rigorous study of the various psychological biases that individuals bring to the annuity

decision.

According to this article, we have a much greater understanding of how we think consumer

ought to optimally behave and of how they actually do behave with respect to annuity decisions.

Until we have a better understanding of why consumers act as if they place so little value on

annuitization, it will remain unclear whether individual and social welfare will be enhanced by

policies that promote annuitization, or even which policies would be successful at doing so. As

such, the economics and psychology of the annuitization decision remains a very fruitful area for

additional research.

Steve Vernon (March 2009) talked about three resources, called the "three-legged stool" that

supports retirement may not be sufficient to support the traditional retirement for many people:

Personal saving is at an all-time low.

Employers have been reducing or eliminating traditional defined-benefit and retiree medical

plans.

Social Security has long-term financial difficulties, and some experts predict that benefit

cutbacks are likely.

29

The middle class will need to change their goals from the traditional retirement, defined as "not

working," to a "rest-of-life" that is fulfilling, healthy, and financially secure. To achieve these

goals, working Americans will need to adopt lifestyle solutions that complement financial

solutions. Financial professionals can help their clients make the most effective choices

regarding financial solutions. Analyzing the realistic limits of financial solutions helps identify

when non-financial solutions are needed.

To summarize the themes in this article, financial professionals can play a critical role in

helping those in the middle class prepare for their retirement years. Financial professionals can

help analyze the realistic limits of traditional financial solutions and discuss holistic strategies

that integrate financial and lifestyle solutions, because the challenges may be more behavioral

than technical.

Christine C. Marks (October 2009) conducted a study to better understand how well American

workers felt their retirement savings had weathered the economic storm, and also to look ahead

and gauge interest in more innovative workplace plans that hold the promise of better outcomes.

The Four Pillars of Retirement represent the foundation of retirement security today, from Social

Security to the choices made in retirement. The four pillars are social security, employment

based plan personal savings and retirement choices. The majority of employees saw the benefits

of all five automatic features: enrollment, initial contribution rate, contribution escalation, asset

allocation, and guaranteed retirement income. Among more experienced employees who spent

most of their employment careers without the benefits of these automatic features, 59% feel they

would have been better off today if their employers had used the entire package of auto-pilot

features. Furthermore, two-thirds would recommend the auto-pilot approach to younger workers.

W Rudman (November 2009) investigated optimal asset allocation as a means of minimizing

the investment risk, drawdown risk and longevity risk associated with an investment linked

living annuity. The three risk elements were tested for various categories of retirees investing the

full retirement savings amount in a living annuity. In order to reach the aim and objectives of the

study, a literature overview of the current South African retirement environment was classified

the South African public according to savings habits, the propensity to save and knowledge on

the financial industry. The second part of the literature review highlighted key considerations

30

with regards to an optimal asset allocation. The key considerations included the risk versus

return relationships for retirees, various unit trust sectors and portfolios within the South African

financial market, the investment horizon also stated as the life expectancy of a retiree and

withdrawal strategies applied by investors or retirees. The study continued with the empirical

study modeling the pre- and post-retirement phases respectively.

The conclusion was made on the pre-retirement phase and post-retirement phase. The pre-

retirement phase provided insights into the amounts available for retirement. Three factors were

used as variables in modeling the pre-retirement phase. These factors included the rate at which

contributions were made towards an approved retirement savings scheme, the investment term

and the investment growth rate received throughout the savings term. The post-retirement phase

tested the sustainability of income withdrawals at various withdrawal rates from a range of asset

allocations. In order to minimize the risks, a retiree investing in a living annuity need to consider

the following factors: available retirement capital, life expectancy, drawdown rate as stated by a

net replacement ratio, investment capital growth, risk versus return relationship and the

allocation of funds towards different asset classes. The assumptions used in the study such as

sector growth rates, inflation, saving terms and forecasting models can be considered a

limitation.

Anup Basu, Alistair Byrnes & Michel E. Drew (2009) compared the traditional lifecycle

strategy with dynamic lifecycle strategy. According to their results the chance of the dynamic

strategy underperforming the lifecycle strategy at the end of such a long horizon is small (though

not insignificant). Not only does the dynamic strategy produce superior terminal wealth

outcomes compared to the lifecycle strategy in a vast majority (about 75 -80%) of cases, it

appears to have a fair chance of outperforming a 100% equity strategy.

Hoe Kock & Jee Yoong (July 2010) examined expected retirement age cohorts as a main

determinant to financial planning preparation. A total of 600 questionnaires were distributed with

a 55% return rate. Five hypotheses were analyzed using hierarchical and stepwise regression

analysis. Results revealed that expected retirement age cohort variables made significant

contribution to financial planning preparation as well as personal orientation towards retirement

planning. The results indicate that current financial resources do have an impact on positive

31

orientation towards retirement planning particularly for those in the younger age group. The

younger age cohorts usually have very little savings so they may be planning to save or increase

their disposable income for a better standard of living in later years. However, it is not very clear

if their intention to save more is purely to improve their standard of living during mid life or

saving for their retirement. Further research can be carried out for this life cycle path looking at

their propensity to save and the sort of investment strategies applied.

Expected retirement age do affect personal orientation towards retirement planning with the

confidence level making a significant impact. On the other hand, no significant effect was found

between expected retirement age cohort and current financial resources but older age cohorts

were relatively more significant predictors. The financial planning model derived from the life-

cycle theories showed positive influences from the personal demographics such as work status,

education, household composition, and income variables as life-cycle factors affecting the

expectation and planning outcomes. This is also talks about the points of financial literacy, and

government support which we discussed in first two articles.

Towers Watson (October 2010) showed that even in a somewhat brighter economic climate,

employees continue to be worry about their long term retirement planning and they are

postponing their retirement, spending less, saving more and are willing to pay guaranteed

benefits in the future. These challenges will have a significant impact on employees. Employees

are taking action to shore up their balance sheet. Increasing number of older employees are

saving more compared with the overall employee group. They are also beginning to rethink how

far those savings will take them. Compare with the two years ago, fewer employees thinks they

will need to save much more in the future to achieve a comfortable level of income in their

retirement. Employees with the DC plans recognize a need to save more. Similarly, they have

started to more contribution for their plans. They expect to continue this contribution over the

next 12 months. Less people are comfortable with their retirement plan and their own decision.

In actually they are confused. The effect of the economic crisis on employee attitudes toward is

risk is significant and long lasting. Today’s retirement and health care affordability challenges

could be creating group of hidden pensioners, employee who want to retire but unable to do so.

This could lead to a host workforce of management issues as these productive employees remain

on company payrolls. Ultimately, these changes in employee attitude toward retirement could

32

have long term implication for workforce planning, talent management, attraction, retention and

engagement.

By Brendan McFarland & Erika Kummernuss (2010) told about the how employers are changing

their strategy like they shift from traditional defined benefit (DB) to defined contribution (DC).

According to which employees should also change their strategy, it also talks about some

products by which they can change their strategy. Only 38% of Fortune 1000 companies

maintain a DB plan and have no frozen plans — a stark decline from 2004, when 59% of Fortune

1000 companies had not frozen a DB plan. The shift from traditional DB plans to DC plans has

redirected a share of employer funding away from older workers, thereby enabling younger

workers to make more significant contributions toward a financially secure retirement.

Nonetheless, events such as the 2008 stock market crash highlight some potentially problematic

effects on workforce patterns created by DC-only platforms. Many DC plan accounts suffered

major losses during the recent financial crisis, forcing some older workers to postpone retirement

to recover from market losses and rebuild their retirement nest eggs. This shows that a sudden

economic slowdown effect all the investment of the employee made with employer from their

salary. DB plans provide greater reliability and security for workers, and offer sponsors unique

opportunities for long term financial efficiency and workforce management.

Paul Myeza & Dawie De Villiers (2010) did an annual Sanlam survey of SA retirement fund

industry and members reveals:

60% of pensioners had insufficient savings levels, leading to 64% of these cutting back

on expenses and 31% had to work to supplement their income

80% of retirement funds did not provide post-retirement medical aid

50% of pensioners face increasing responsibilities such as dependants and 29% have debt

Gross investment returns of retirement funds almost double at 11.4%.

According to the survey’s findings, this article suggest that;

Retirement contributions still well below recommended average, despite warning signs

from pensioners

33

Member misconceptions highlight increasing need for education and responsibility

 Post-retirement healthcare costs underestimated members actually prefer to be compelled

to save.

Member communication improves if investment returns bounce back.

Towers Watson (2010) Life-cycle investment strategies were designed some years ago in the

United States and United Kingdom to ensure that designed contribution plan members who do

not make their own investment decisions have a reasonably appropriate risk/return profile over

their saving life. Today, life-cycle investment strategies are quickly becoming a well-established

part of the defined contribution (DC) landscape in Canada as well 24% of DC plans with a

default option utilize a life-cycle strategy for this purpose, and another 14% are considering

changing the default option to a life-cycle strategy over the next 18 months. Traditional life-

cycle investment strategies attempt to determine the most appropriate asset mix for DC plan

members to balance their risk and return profiles based on the number of years the members have

until retirement. Younger members with longer to retirement tend to invest more in growth

assets, typically equities, while more mature members with fewer years to retirement tend to

gradually transfer their assets to protection seeking investments.

Life-cycle investment strategies remain a good automated, risk-controlled asset allocation

strategy for DC plan members’ portfolios. Both the theory and evidence suggest it is a good way

of ensuring an appropriate balance of risk and return. Implementation, however, is crucial, and as

DC plans grow to significant importance, some improvements in this area are becoming

necessary. They suggest it is desirable for some plans to place more emphasis on the middle

group, the guided selectors, when designing the plan and the engagement strategy. This group of

members would benefit from better DC design that enables them to consider their own

circumstances more when structuring their DC assets.

William Klinger (January 2011) examined eight different strategies proposed by researchers

and pundits by simulating and evaluating the strategies according to a common set of criteria. In

order to address the important concern and criterion of the trade-off between total real retirement

income and real legacy, the strategies are also simulated to show the effect of purchasing

immediate annuities with different percentage of the retirement portfolio. An approach is

34

presented to help guide a retiree or planner in selecting the ‘best’ strategy for the retiree. The

strategies are 4% Rule, Floor & ceiling strategy, Modified 4% strategy, Decision rules strategy,

Safe Reset Strategy, Aggressive Strategy, Half-Annuity strategy, and Delayed-Annuity Strategy.

The research uses Monte Carlo simulation to test the retirement strategies. The first observation

in the conclusion that can be made is that simulations of the retirement strategies show that all

the strategies can produce high success rates. Second, the retirement income profiles produced

by the strategies show marked differences. Third, the research shows that the strategies can be

combined with annuities purchased at retirement to give retirees control over their total

retirement income and the legacy they leave.

Pragya Mishra (June 2011) did a research in which she focused on how various retirement

benefit scheme available can help protect against post retirement risks and financial insecurities,

particularly in light of the current uncertain economic and financial global environment. Of

particular interest was the question whether and how legislative framework can be better used or

designed to meet and manage retirement risks. This research showed that the pension market is

far from exhausted. Indeed more workers than ever before seek sensible pension designs to help

them save during the accumulation phase, and also to help them manage pension payouts in

retirement. According to this research paper 90% per cent of India’s total working population is

not covered for post retirement life. The Indian Parliament has evolved a comprehensive

legislative framework to effectuate proper implementation of retirement benefit plans.

The major Acts and Schemes which deal with retirement benefit issues are as under:

The Pension Act,1871

The Employees' Provident Funds and Miscellaneous Provisions Act,1952

Payment of Gratuity Act, 1972

Voluntary Retirement Scheme

After reading all these schemes we come to know that if a person is aware about it then he/she

can use that scheme to make good investment strategy for retirement planning. But this paper did

not talk about how to better protect retiree minimum pension guarantees, ultimately the core-

concern of retirement plan designers.

George Burns (September 2011) explored that how much challenges people face in planning of

income nearest retirement age. The research simulates the challenge of investing and planning

35

for a secure retirement is a growing concern or not. How is there a greater awareness and interest

in guaranteed retirement income products, these products are more likely to keep in the stock

market, is Investors recognize significant challenges in planning retirement income, Investors

want help with retirement income decisions and even as they become more self-reliant. More

people were reporting that retirement concern investments are reliable for life. They believe that

this is a trade-off for their life. Most of people were positive for retirement stage and, also for

growth and concern for asset. They were also positive for risk concern prospective. They found

high bullish. Investors should consider the contract and the underlying portfolios’ investment

objectives, risks, charges and expenses carefully before investing. This and other important

information is contained in the prospectus, which can be obtained from your financial

professional. Please read the prospectus carefully before investing. A variable annuity is a long-

term investment designed for retirement purposes. Investment returns and the principal value of

an investment will fluctuate so that an investor’s units, when redeemed, may be worth more or

less than the original investment. Withdrawals or surrenders may be subject to contingent

deferred sales charges. Annuity contracts contain exclusions, limitations, reductions of benefits

and terms for keeping them in force. Your licensed financial professional can provide you with

complete details. Optional benefits, available for an additional fee, have certain investment,

holding period, liquidity, and withdrawal limitations and restrictions. All guarantees, including

optional benefits, are backed by the claims-paying ability of the issuing company and do not

apply to the underlying investment options.

Study of Americans (2011) explored the gauge the financial and emotional impact of the 2008-

09 market crisis and access Americans outlook for their near-term and long-term financial

prospects, which includes the role of financial products and trust in the financial service industry.

It explores that the financial crisis and the ensuing recession created significant financial and

retirement challenge for Americans. Two-thirds agree that the events of the past few years were

different than, anything they have ever experienced. Most investors believe that the investments

they have today are not earning enough to make up for the losses they’ve experienced over the

past few years. Investors are being more thoughtful and selective about the financial services

firms they will choose. Exploration of new products will be limited if investors don’t know

which firms or advisors they can trust. Discerning the good from the bad presents a challenge for

36

many investors. Americans are calling for a better way to protect and secure their financial

futures. Winning their trust is the challenge.

Financial services firms must make a concerted effort to win trust and inspire confidence if they

are to effectively help. Americans achieve financial and for retirement security.

Wade D. Pfau(2011) provided a simple scenario to illustrate the principle of the “safe savings

rate.” Introducing more realistic factors could either increase or decrease required in saving rate.

According to this The savings rate does not need to be fixed, as individuals can make projections

for their future income, unique consumption needs such as raising children or paying for a home,

and retirement expenditures. Allowing for consumption smoothing needs, these projections can

be calibrated with a variable savings rate needed to fit the planned pattern of lifetime savings. It

should use actual historical return for better study of retirement planning.

37

CHAPTER 3

PRESENT WORK

38

3.1 NEED AND SCOPE OF STUDY

Private sector employees don’t get any retirement benefit from the government. So in order to

have a secure and independent life after retirement they need to plan for it. There is the need to

invest the money wisely so as to have an enough amount at retirement to spend the after

retirement life happily. There is the scope of the study for financial planners to know what the

investors are thinking and how they are behaving. It is a need to know what the various factors

are that are affecting the decision making in choosing the strategy for retirement planning.

3.2 OBJECTIVES

To know the various strategies that the private sector employees use to invest for

retirement planning.

To know the various factors those are affecting the decision regarding the choice of

strategy.

To know the awareness of employees regarding various product of retirement.

39

3.3 RESEARCH METHODOLOGY

The Study:

The report would be an exploratory one and as such will involve the collection of both primary

and secondary data. It would be exploratory in nature and would provide insight about the

various factors affecting the decision making in choosing the strategy regarding retirement

planning. It will help to identify and define the key research variables.

Sample Design:

1. Population:

The population for this research will include faculty and other staff members of lovely

professional university.

2. Sampling Elements:

Sampling elements consist of individual respondents.

3. Sampling Techniques:

In this research non- random sampling technique will be used for collecting data and

under that it will be convenience sampling.

4. Sample Size:

Sample size will be of 200 individual respondents.

Data Collection:

Primary data will be collected by means of questionnaires

Secondary data was extracted from books such as (Naval Bajpai), Journal of

contemporary research in business and by browsing internet, websites like:

www.ebescohost.com

www.googlescholar.com

www.essayrelief.com

www.ssrn.com

www.proquest.com

www.collegeboard.com

40

3.4 EXPECTED OUTCOME OF STUDY

Private sector employees use different strategies in different stages of life.

Age is an important factor that is influencing the decision regarding the selection of

strategy.

Private sector employees use aggressive strategy in early life and conservative strategy in

late age.

Knowledge about investment, risk tolerance, marital status are some important factors

that influence decision towards strategy selection.

41

CHAPTER 4

CONCLUSION

Till now we find that private sector employees get the minimum retirement plans or benefits

from their employer which is approximate 335% less than a government employer. There are

various products available in the market to better plan a retirement but for that a person should

have proper or full knowledge about the product in which he /she wants to invest. By reading the

various research papers and journals we find that life cycle strategy have the more impact on the

retirement plan than the other strategies, which further divided in two major strategies,

aggressive and conservative but according to us whenever a person plan their retirement should

go with modern/dynamic life cycle strategy because it gives more elaborative data.

There are four pillars called social security, employment based plan personal savings and

retirement choices are available for better retirement plan. The strategies also differ on the basis

of gender also, in one article they show women are invested more in real estate if they got in

heritance. Financial literacy is also a major point in deciding strategies which almost discussed in

all papers related to retirement planning.

42

CHAPTER 5

REFERENCES

I. Journals/Research paper:

1. Annamaria Lusardi (Dartmouth College) & Olivia S. Mitchell (University of

Pennsylvania), (October 2007), “Financial Literacy and Retirement Planning: New

Evidence from the Rand American Life Panel”

2. Anup K. Basu & Michael E. Drew (2007), “Portfolio Size and Lifecycle Asset Allocation

in Pension Funds”

3. Anup Basu, Alistair Byrnes and Michael E. Drew (2009), “Dynamic Lifecycle Strategies

for Target Date Retirement Funds”, Griffith Business School, discussion paper, Finance

4. Brendan McFarland and Erika Kummernuss (2010), “Pension Freezes Continue Among

Fortune 1000 Companies in 2010”, Towers Watson 901 N. Glebe Rd. Arlington

5. Christine C. Marks (October 2009), “The New Economic Reality And The Workplace

Retirement Plan”, Prudential’s Sixth Annual Workplace Report On Retirement Planning

6. David A. Wise (2006), “Financing Retirement: The Private Sector(The shift from defined

benefit pension to personal retirement accounts is likely to benefit retirees)”, Business

Economic

7. George Burns (September 2011), “Changing Attitudes About Retirement Income”,

Journey well, arrive better-Redefining DC investment

43

8. Hoe Kock, TAN and Jee Yoong FOLK (July 2010), “Expected retirement age: A

determinant of financial planning preparation”, African Journal of Business Management,

Vol. 5(22), pp. 9370-9384

9. Hugo Benítez Silva and Debra S. Dwyer (June, 2002), “Retirement Expectations

Formation Using the Health and Retirement Study”

10. Jeffrey R. Brown (October 2007), “ Rational and Behavioral Perspective on the Role of

Annuities in Retirement Planning”, National Bureau Of Economic Research Working

Paper No. 13537

11. Joy M. Jacobs-Lawson & Douglas A. Hershey (2005), “Influence of future time

perspective, Financial knowledge and financial risk tolerance on retirement saving

behaviors”, Financial Services Review vol.14, pp. 331–344

12. Lori L. Embrey & Jonathan J. Fox(1997), “Gender Differences In The Investment

Decision-Making Process”, Financial Counseling and Planning, Vol. 8

13. Pragya Mishra, Hidayatullah National law University, Raipur (Chattisgarh), (June 2011),

“Analysis of Retirement benefits and the Legislative framework in India” Quest

International Multidisciplinary Research Journal, Vol-1, Issue-1

14. Steve Vernon (March 2009), “Retirement Planning for the Middle Class: Holistic

Strategies will be Essential”, FSA, Journal of Financial Service Professionals

15. Study of Americans’ Current Financial Perspectives(2011), “Meeting Investment and

Retirement Challenges”

16. Towers Watson (2010), “The Life Cycle Strategy”, Canadian Capital Accumulation Plan

Survey

44

17. Towers Watson (October 2010), “Retirement Attitude: Part 2-Employee Attitudes

Toward Risk”

18. Wade D. Pfau, Ph.D. (2011), “Safe Savings Rates: A New Approach to Retirement

Planning over the Life Cycle”, May 2011 Journal of financial planning

19. William Klinger (January 2011), “In Search of the “Best” Retirement Strategy”, Journal

of Financial Service Professionals, January 2011

20. W Rudman (November 2009), “Post-Retirement Planning: Asset Allocation” North-West

University, Potchefstroom Campus

II. Websites:

1. www.ebescohost.com

2. www.googlescholar.com

3. www.essayrelief.com

4. www.ssrn.com

5. www.proquest.com

6. www.collegeboard.com

7. www.towerswatson.com

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46

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