Upskill, save, invest: Mantra for being retirement-ready
MUMBAI: Retirement is something that is going to happen to all of us. But how prepared are you for it? According to a recent report published by Global Aging Institute and Principal, a retirement crisis of potentially immense proportion looms in India’s future.
“Just one in eight workers is now earning a contributory pension benefit of any kind. Most Indians still rely heavily on the extended family for support in old age,” the study notes. As things stand, India is far from prepared. The reach of its formal retirement system is limited, even by emerging market standards.
FAMILY STRUCTURE AND DEMOGRAPHY
Since Indians have been relying on family support during old age, the pressure has not been much so far.
However, traditional family support networks are already under stress from the forces of modernisation, and will soon come under an intense new demographic pressure as a result of the declining family size as India’s young demographic ages. “If nothing is done, tens of millions of Indians will reach old age over the next few decades without pensions, personal savings, or children to support them,” finds the report.
LACK OF GOVT SUPPORT
According to the report, for a country with such a low rate of pension coverage, India has a surprisingly complex retirement system.
“Workers covered by the Employment Provident Fund (EPF), the mandatory provident fund for private sector workers, are also covered by the Employees’ Pension Scheme (EPS), a related defined-benefit program. The National Pension System (NPS), which is mandatory for civil servants and voluntary for everyone else, includes personal and employer pension options and special schemes for informal-sector workers,” the report notes.
There are also a variety of other voluntary retirement savings schemes, including the Public Provident Fund (PPF), a government-run scheme open to all; Superannuation Funds, which are employer-sponsored pension plans; and pension products offered by life insurance companies and mutual funds.
WHAT YOU SHOULD DO
The report states that Indians are used to treating retirement programs as allpurpose savings vehicles, which is why early withdrawals and lump-sum payouts are so common.
“To the extent that they don’t think about retirement at all, many, if not most, Indians still bank heavily on the extended family in their planning. Although doubts about the soundness of this strategy are beginning to grow, they are yet to catalyse a widespread shift in this behaviour,” the report INDIA'S YOUNG DEMOGRAPHIC: WHAT THE NUMBERS SAY
of working age people typically save for short-term goals rather than long-term plans
of working age people are paying into a retirement account of each month
of working age people are currently saving saving for future nursing/care home fees
of working age people are predicting a comfortable retirement(source: states.
According to financial planners, this crisis is likely to happen during retirement if you don’t plan for it. “This is a typical situation. We are a transit generation—where we are going to live without the support of children. I left my parents and came to Mumbai so I can’t expect my children to take care of me. That is the trend. Expecting children and extended family to provide financial support is out of the question for this generation,” said Melvin Joseph, a Mumbai-based financial planner.
Then how do you take care of your retirement goal?
“There are two ways to do it—either upskill so that you are able to generate some passive income that will ensure that you dip into money only much later, or start investing as soon as you get a job,” said Joseph. While doing this, don’t sacrifice your current standard of living for future savings but also don’t spend like there is no tomorrow.