Often, when we start thinking about retirement planning, our mind seems to get clogged with diverse thoughts and anxieties. Since there is no customary planning that can work for everyone, it is pertinent that an individual should visualize an intended life and then go for meticulous planning and execution through various stages of life. Changing lifestyle, individual preferences, social and family values and higher life expectancy are some of the factors that have made this job more challenging. And it is sure to get more arduous in the future. To secure the well being of tomorrow, one needs to introspect, understand and assess financial status, identify priorities and goals and then put in place a well-thought-out plan with definite timelines. A few questions, however, may arise, like when one should begin, where one should begin and so on.
Where are we?
India today has nearly 80 million elderly people and the number is going to increase considerably in the future. A majority of this population does not have formal social security cover or retirement funding scheme to take care of their extended future. Unlike the US and Europe where almost 80% of full-time workers have access to employer-sponsored retirement plans, in India, we should have self-funded schemes for sunset years.
Financial literacy, fiscal burden of the pension scheme, unorganized nature of the market and heterogeneous workforce are some of the key challenges we have to deal with when we think on a broader perspective. A survey from Tower Watson says Indian employees are heavily dependent on employers for post-retirement income. This is because, for many, employer retirement plans form the top source of income after retirement. Further, the survey finds that 78% of Indian employees recognize they will need to save more for retirement. Moreover, 71% of retirement plan members report they are under-saving relative to what they ideally should save.
Another survey by Aegon Retirement Readiness survey 2014 brings to light that the majority of workers who were surveyed by them (80%) have a retirement plan. However, only 18% claim to have a plan that is written down. Moreover, one-sixth (18%) do not have any plan at all. All these statistics do underline the lack of sufficient social security system or retirement funding but at the same leaves us with an immense opportunity to put in place a retirement system which can grow to billions of rupees in future. A PFRDA estimate put the figure at Rs 1,808 billion by 2025.
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Clearly, the message is that retirement planning as a primary necessity in Indians has to go deeper among masses. The above figures also demonstrate a varied level of importance we all attach to this financial milestone. A deferred planning or unstructured planning is some of the common characteristics the way it is today. Broadly, we all would agree that retirement planning is not just building nest eggs for post-retirement needs but it encapsulates meeting various life-stage goals. At no point, life’s various goals can be seen in isolation or as a stand-alone requirement.
Ten years back, getting rich or accumulating a lot of wealth towards the end was considered to be decisive. In comparison, at present it is about saving or creating enough towards financial peace of mind. The key elements emanating out of it could be financial security through sufficient resources, fit and consistent health, family security and protection in case of eventuality and individual aspirations.