Retirement planning

Definition

Retirement planning is the process of determining retirement income goals and the actions necessary to achieve those goals. It involves evaluating current financial status, projecting future needs, and implementing strategies to meet those needs through savings and investments.

5 Must Know Facts For Your Next Test

1. Retirement planning often utilizes annuities to provide a steady income stream during retirement.
2. The time value of money is crucial in retirement planning as it affects how much you need to save today to reach your future goals.
3. Annuities can be classified as either fixed or variable, each with different risk and return profiles.
4. Understanding the concept of present value helps in determining how much you need to invest now for a desired future amount.
5. Compounding interest plays a significant role in growing retirement savings over time.

Review Questions

• Why is the time value of money important in retirement planning?
• How do annuities contribute to a retirement plan?
• What are the differences between fixed and variable annuities?

Related terms

Annuity: A series of equal payments made at regular intervals over a specified period.

Present Value: The current value of a future sum of money or stream of cash flows given a specified rate of return.

Compounding Interest: The process where the value of an investment increases because the earnings on an investment earn interest themselves.