Young Indians are grossly unprepared for old age as very few of them are preparing for retirement, warns a survey. India may be one of the youngest nations in the world today, but thirty years from now, the country will have a huge population base in the retirement age, and since a handful of them are preparing for retirement, a nightmare scenario is brewing on that front, cautions a survey conducted by Nielsen for PGIM Mutual Fund.
The findings of the survey further suggested that at a time when "rising prosperity and improving healthcare have greatly increased the average life-span and traditional family structures have begun to fragment, creating greater anxiety about the future", lack of foresight among the young Indians may post as a big challenge.
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As per the report, 51 per cent of Indians do not have a retirement plan ready and barely one in five takes inflation into account while planning for retirement. Bank FDs (fixed deposits) and Life Insurance are the top picks for those planning for retirement, which underscores the fundamental conservatism in most retirement plans.
"With a large ageing population and a shrinking working-age population, future governments will struggle to provide for their elderly, making it imperative for individuals to have their own plans," highlighted Ajit Menon, CEO of PGIM India Mutual Fund. Indians know very well that retirement planning is important, but do not wish to speak about it. The survey shows that there is a disposition to dwell on positive possibilities such as saving for weddings and education, rather than morbid ones such as term policies for accidents, health insurance, life insurance or media claim.
"Indians rarely plan for retirement as a standalone objective. Most Indians do not have a ring-fenced 'retirement fund' - either because they haven't begun retirement planning yet, or because they just have all-purpose funds and investments that may be used later for retirement, in case any of the worst-case scenarios do not materialise," the report stated.
The survey was carried out among respondents with an average annual income of Rs 5.72 lakh, at an average age of 44 years and primarily urban. While most of them said they would require a principal sum of approximately Rs 50 lakh for retirement, the said amount, according to investment planners, is insufficient as inflation will erode much of the money's worth. Thus, ignoring the impact inflation could thwart one's future plans.
Hence, what should be done to motivate Indians to save more for their retirement? The survey suggests motivation from employers might work. Around 88 per cent of Indians are of the opinion that they would at least be somewhat encouraged and driven to plan for retirement if they received help and guidance from their employers. Menon is of the view that, besides them, the government should focus on it in order to mitigate future strain from its shoulders.
"The government can provide a further boost to retirement planning by implementing or increasing tax benefits for long-term retirement savings and with designated retirement products such as insurance, National Pension Scheme or mutual funds," Menon suggested. He also expressed optimism that the coronavirus pandemic may bring about deeper changes in people's behaviour as prior studies pointed towards a slump in spending and preference for cash and savings.
"But we will have to see if these behaviours sustain over time, post the pandemic emergency," Menon stated.