Sunday, March 8, 2009
Retirement is the point where a person stops employment completely.[1][2] A person may also semi-retire and keep some sort of retirement job,.........
Retirement is the point where a person stops employment completely. A person may also semi-retire and keep some sort of retirement job, out of choice rather than necessity. This usually happens upon reaching a determined age, when physical conditions don't allow the person to work any more (by illness or accident), or even for personal choice (usually in the presence of an adequate pension or personal savings). The retirement with a pension is considered a right of the worker in many societies, and hard ideological, social, cultural and political battles have been fought over whether this is a right or not. In many western countries this right is mentioned in national constitutions.
In most countries, the idea of a fixed retirement age is of recent origin, being introduced during the 19th and 20th centuries. Previously,.........
In most countries, the idea of a fixed retirement age is of recent origin, being introduced during the 19th and 20th centuries. Previously, the absence of pension arrangements meant that most workers continued to work until death, or relied on personal savings or the support of family or friends. Nowadays most developed nations have systems to provide pensions on retirement in old age, which may be sponsored by employers or the state. In many poorer countries, support for the old is still mainly provided through the family.
The retirement age varies from country to country but it is generally between 55 and 70. In some countries this age is different for males and females. Sometimes certain jobs, the most dangerous or fatiguing ones in particular, have an earlier retirement age.
In the United States, while most view 65 as normal retirement age, many retire before then, sometimes with contributory causes such as job-loss, disability or wealth. However, the Old Age Survivors Insurance or OASI, better known as the Social Security system has age 62 as the earliest retirement age. Normal retirement age for Social Security has historically been age 65 to receive unreduced benefits, but it is gradually increasing to age 67. For those turning 65 in the year 2008 full benefits will be payable beginning at age 66. Police officers in the United States are typically allowed to retire at half pay after only 20 years of service or three-quarter pay after 30 years, allowing people to retire in their early forties or fifties.
In 2007, retirement age for teachers in France is thirty eight years after employment and age 50 for train engineers on the SNCF, the national railway.
Many politicians, scientists, lawyers, television anchors, and professors still work well into their 70s, however some actors, models, athletes, and musicians only work until their 30s.
Military members of the US Armed Forces may elect to retire after 20 years of active duty. Their retirement pay (not a pension since they can be involuntarily called back to active duty at any time) is calculated on total number of years on active duty, their final pay grade and the retirement system in place when they entered service. Allowances such as housing and subsistence are not used to calculate a member's retired pay. Members awarded the Medal of Honor qualify for a separate stipend, regardless of the years of service. Military members in the reserve and US National Guard have their retirement based on a point system
The retirement age varies from country to country but it is generally between 55 and 70. In some countries this age is different for males and females. Sometimes certain jobs, the most dangerous or fatiguing ones in particular, have an earlier retirement age.
In the United States, while most view 65 as normal retirement age, many retire before then, sometimes with contributory causes such as job-loss, disability or wealth. However, the Old Age Survivors Insurance or OASI, better known as the Social Security system has age 62 as the earliest retirement age. Normal retirement age for Social Security has historically been age 65 to receive unreduced benefits, but it is gradually increasing to age 67. For those turning 65 in the year 2008 full benefits will be payable beginning at age 66. Police officers in the United States are typically allowed to retire at half pay after only 20 years of service or three-quarter pay after 30 years, allowing people to retire in their early forties or fifties.
In 2007, retirement age for teachers in France is thirty eight years after employment and age 50 for train engineers on the SNCF, the national railway.
Many politicians, scientists, lawyers, television anchors, and professors still work well into their 70s, however some actors, models, athletes, and musicians only work until their 30s.
Military members of the US Armed Forces may elect to retire after 20 years of active duty. Their retirement pay (not a pension since they can be involuntarily called back to active duty at any time) is calculated on total number of years on active duty, their final pay grade and the retirement system in place when they entered service. Allowances such as housing and subsistence are not used to calculate a member's retired pay. Members awarded the Medal of Honor qualify for a separate stipend, regardless of the years of service. Military members in the reserve and US National Guard have their retirement based on a point system
Retired workers then support themselves either through pensions or savings. In most cases the money is provided by the government, but sometimes grant
Retired workers then support themselves either through pensions or savings. In most cases the money is provided by the government, but sometimes granted only by private subscriptions to mutual funds. In this latter case, subscriptions might be compulsory or voluntary. In some countries an additional "bonus" is granted una tantum (once only) in proportion to the years of work and the average wages; this is usually provided by the employer.
The financial weight of provision of pensions on a government's budget is often heavy and is the reason for political debates about the retirement age. The state might be interested in a later retirement age for economic reasons.
The cost of health care in retirement is large, because people tend to be ill more frequently in later life. Increasing numbers of older people, combined with an increase in the cost of healthcare, has led to the funding of post-retirement health care becoming a political issue. There is then pressure to reform healthcare systems to contain costs, or find new sources of funding.
On a personal level, the rising cost of living during retirement is a serious concern to many older adults.
The financial weight of provision of pensions on a government's budget is often heavy and is the reason for political debates about the retirement age. The state might be interested in a later retirement age for economic reasons.
The cost of health care in retirement is large, because people tend to be ill more frequently in later life. Increasing numbers of older people, combined with an increase in the cost of healthcare, has led to the funding of post-retirement health care becoming a political issue. There is then pressure to reform healthcare systems to contain costs, or find new sources of funding.
On a personal level, the rising cost of living during retirement is a serious concern to many older adults.
There are several online retirement calculators on the Internet. Many retirement calculators project how much an investor needs to save,.........
There are several online retirement calculators on the Internet. Many retirement calculators project how much an investor needs to save, and for how long, to provide a certain level of retirement expenditures. Some retirement calculators, appropriate for safe investments, assume a constant, unvarying rate of return. Monte Carlo retirement calculators take volatility into account, and project the probability that a particular plan of retirement savings, investments and expenditures will outlast the retiree. Retirement calculators vary in the extent to which they take taxes, social security, pensions, and other sources of retirement income and expenditures into account.
The assumptions keyed into a retirement calculator are critical. One of the most important assumptions is the assumed rate of real (after inflation) investment return. A conservative return estimate could be based on the real yield of inflation indexed bonds offered by some governments, including the United States, Canada, and the United Kingdom. The TIP$TER retirement calculator projects the retirement expenditures that a portfolio of inflation-linked bonds, coupled with other income sources like Social Security, would be able to sustain. Current real yields on United States Treasury Inflation Protected Securities (TIPS) are available at the US Treasury site. Current real yields on Canadian 'Real Return Bonds' are available at the Bank of Canada's site. As of mid-October, 2008, US Treasury inflation-linked bonds (TIPS) were yielding about 2.5%-3% real per annum.
Many individuals use 'retirement calculators' on the Internet to determine the proportion of their pay which they should be saving in a tax advantaged-plan (eg IRA or 401-K in the US, RRSP in Canada, personal pension in the UK). After expenses and any taxes, a reasonable (though arguably pessimistic) long-term assumption for a safe real rate of return is zero. So in real terms, interest doesn't help the savings grow. Each year of work must pay its share of a year of retirement. For someone planning to work for 40 years and to be retired for 20 years, each year of work pays for itself and for half a year of retirement. Hence 33.33% of pay must be saved and 66.67% can be spent when earned. After 40 years of saving 33.33% of pay we have accumulated assets of 13.33 years of pay, as in the graph. In the graph to the right, the lines are straight, which is appropriate given the assumption of a zero real investment return. The lines would be curved if one assumed a non-zero real investment return.
The graph above can be compared with those generated by many retirement calculators. However, most retirement calculators use nominal (not 'real' dollars), and therefore require a projection of both the expected inflation rate and the expected nominal rate of return. One way to work around this limitation is to, for example, enter '0% return, 0% inflation' inputs into the calculator. The Bloomberg retirement calculator gives the flexibility to specify, for example, zero inflation and zero investment return and to reproduce the graph above. The MSN retirement calculator in 2008 cannot be changed from an assumed 3% per annum inflation rate, so one would set an investment return assumption of 3%.
Ignoring tax, someone wishing to work for a year and to then relax for a year on the same living standard needs to save 50% of pay. Similarly, someone wishing to work from age 25 to 55 and to be retired for 30 years till 85 needs to save 50% of pay if government and employment pensions are not a factor, and if it is considered appropriate to assume a zero real investment return. The problem that the lifespan is not known in advance can be reduced in some countries by the purchase at retirement of an inflation-indexed life annuity.
[edit] Retirement calculations
The assumptions keyed into a retirement calculator are critical. One of the most important assumptions is the assumed rate of real (after inflation) investment return. A conservative return estimate could be based on the real yield of inflation indexed bonds offered by some governments, including the United States, Canada, and the United Kingdom. The TIP$TER retirement calculator projects the retirement expenditures that a portfolio of inflation-linked bonds, coupled with other income sources like Social Security, would be able to sustain. Current real yields on United States Treasury Inflation Protected Securities (TIPS) are available at the US Treasury site. Current real yields on Canadian 'Real Return Bonds' are available at the Bank of Canada's site. As of mid-October, 2008, US Treasury inflation-linked bonds (TIPS) were yielding about 2.5%-3% real per annum.
Many individuals use 'retirement calculators' on the Internet to determine the proportion of their pay which they should be saving in a tax advantaged-plan (eg IRA or 401-K in the US, RRSP in Canada, personal pension in the UK). After expenses and any taxes, a reasonable (though arguably pessimistic) long-term assumption for a safe real rate of return is zero. So in real terms, interest doesn't help the savings grow. Each year of work must pay its share of a year of retirement. For someone planning to work for 40 years and to be retired for 20 years, each year of work pays for itself and for half a year of retirement. Hence 33.33% of pay must be saved and 66.67% can be spent when earned. After 40 years of saving 33.33% of pay we have accumulated assets of 13.33 years of pay, as in the graph. In the graph to the right, the lines are straight, which is appropriate given the assumption of a zero real investment return. The lines would be curved if one assumed a non-zero real investment return.
The graph above can be compared with those generated by many retirement calculators. However, most retirement calculators use nominal (not 'real' dollars), and therefore require a projection of both the expected inflation rate and the expected nominal rate of return. One way to work around this limitation is to, for example, enter '0% return, 0% inflation' inputs into the calculator. The Bloomberg retirement calculator gives the flexibility to specify, for example, zero inflation and zero investment return and to reproduce the graph above. The MSN retirement calculator in 2008 cannot be changed from an assumed 3% per annum inflation rate, so one would set an investment return assumption of 3%.
Ignoring tax, someone wishing to work for a year and to then relax for a year on the same living standard needs to save 50% of pay. Similarly, someone wishing to work from age 25 to 55 and to be retired for 30 years till 85 needs to save 50% of pay if government and employment pensions are not a factor, and if it is considered appropriate to assume a zero real investment return. The problem that the lifespan is not known in advance can be reduced in some countries by the purchase at retirement of an inflation-indexed life annuity.
[edit] Retirement calculations
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