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Nelson Kooh is a financial planner of a wealth management company WMC Inc
Nelson Kooh is a financial planner of a wealth management company WMC Inc. He specializes in retirement planning. Over the years, he has helped many of his clients to plan for their retirement. Recently, WMC recruited a number of fresh graduates who will assist in organizing Mandatory Provident Fund (MPF) seminars for employees. Some graduates made the following statements:
- ‘It is a waste of money to conduct seminars on retirement planning in local community. An individual either wants to plan for their retirement or does not. There is nothing we can do about it.’
- ‘I see why we have the MPF policy in Hong Kong. I like the mandatory nature of the MPF scheme because employees can start saving for their retirement when they are young. Other than this, I cannot see any reasons to participate in MPF schemes. Why not simply put the employees’ and employers’ contributions in a bank? Bank deposits are much safer.’
- ‘An MPF scheme is basically a defined benefit plan. The Hong Kong government guarantees the MPF will not fail. When an employee retires, he/she can collect retirement money from the respective MPF scheme.’
- ‘My friend has more than one job. One of his employers is so nice to allow him not contributing to any MPF scheme, so he has more disposable income.’
- ‘My uncle is 55 year old and plans to retire early. He told my father that he has recently applied to withdraw his accrued benefits in his MPF scheme.’
Nelson believes these statements about retirement planning contained misconceptions. Explain.
Expert Solution
Ans) The above statements about retirement planning contained misconceptions due to the following reasons :
- Future is uncertain, every person has to do retirement planning.
- For Retirement planning, safe investment like Provident Fund is considered ideal as compared to the risky investment like stocks.
- If an individual planned his retirement than power of compounding comes into the factor which makes the big amount at the time of retirement.
- There are several benefits of Provident Fund. One of the most important benefits of provident fund is that it will provides the pension scheme for the employee if it is hold more than 10 years.
- Another reason for Mandatory Provident Fund is that employee can get Insurance benefits.
- Employee can withdrawn the pf amount for their future needs like marriage , medical treatment etc.
- One of the important benefits of provident fund is that they can avail tax benefits.
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