India currently has the world’s largest young working population. Underneath this demographic vitality, though, is a disturbing reality that needs to be addressed: the people who are working today will become the retirees of tomorrow. As per the India Ageing Report 2023, the percentage of the population of age 65 and older will rise from 10.5 percent to 20.8 percent by 2050, thus projecting that the country will double its share of senior citizens in just over two decades.
In this context, it should also be noted that life expectancy in India nearly doubled from 35.21 years in 1950 to 70.19 years in 2022. And while this is a positive trend that reflects remarkable progress in healthcare and quality of life, it also exposes our longevity risks; thus bringing forth the importance of proactive and comprehensive retirement planning. With this, it becomes crucial that retirement planning goes from being a mere financial exercise to a holistic view of post-retirement life that gives due consideration to some vital aspects mentioned below.
Regular, early investments: Regular savings, investments, and prudent financial decisions will help build a safety net to sustain through retirement. Many urban dwellers today either believe that they have enough wealth in hand or that they will be cared for by their children. However, nearly a third of the urban population is worried that their savings will deplete within five years of retirement, as pointed out by a recent retirement survey.
Beginning your retirement planning and investment journey early enables you to stay ahead of inflation up to, and even beyond, your retirement. Compounding is an effective way of building a substantial retirement corpus. However, you need to make contributions early and consistently to reap the best results. In planning for retirement, you will find many options. However, in India, retirement benefits such as pensions, gratuities, and other forms of superannuation are taxable to varying degrees, based on the type of benefit, the amount received, and your tax status. The tax liabilities could lead to your corpus falling short of the intended target. It is therefore better to choose different savings instruments, including those with tax-saving options.
Diversified investment portfolio: Pension plans and annuities provide decent defence against the risk of ageing. They guarantee retirees can maintain a high standard of living and regular income without having to worry about running out of money. The secret is striking a healthy balance between investment objectives and risk tolerance, between short-term risk hedging and long-term gain consolidation. For this, a diversified investment strategy works best.
Today, small-cap and mid-cap mutual funds are great options for portfolio diversification. Small-cap funds, especially, can grow investor wealth manifold and are therefore favoured by investors who are willing to face the higher risk these funds entail. Mid-cap mutual funds, in comparison, have lower risk and can grow investor wealth handsomely, although perhaps not to the same degree as small-cap funds. Both are useful instruments for compounding growth over the long term and building a substantial retirement corpus.
Prioritise your own health and your family’s support: People age gracefully when they are both physically and mentally healthy. Retirement planning should give due consideration to the health aspect and healthcare costs. A recent Retirement Index Study finds that almost 59 percent of Indians prioritize health while planning for retirement, while 33 percent consider finances to be the most important aspect. Social and emotional well-being are equally vital. Many urban Indians view retirement as the harbinger of positive change and a stress-free life.
While there are no strict rules to follow when it comes to retirement planning, there are no “right” or “wrong” approaches either. Each of us must make this decision for ourselves, taking into account our unique priorities, perspectives, and situations. But since the majority of us dedicate our lives to supporting our families and pursuing our dreams, we ought to live honourably and comfortably in retirement. By focusing on financial planning for retirement, one can thus effectively secure their financial future, achieve their desired lifestyle, and ensure a comfortable and stress-free retirement. All that is needed is a comprehensive, well-thought-out retirement plan.
V Viswanand is Deputy Managing Director, Max Life.
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Published: 17 Dec 2023, 10:57 AM IST