Key Factors That Impact Your Financial Readiness for Retirement

Planning for retirement is much more than saving a fixed amount every month; it is about being aware of the parameters affecting your wealth generation and adapting to the dynamic and complex financial landscape. Given the unpredictability of life, several factors can eventually have a big impact on your retirement savings.

The following are the main factors that may impact your retirement financial readiness:

1. Inflation

Inflation erodes the value of money and reduces the purchasing power of your savings with time. Thus, it becomes extremely important to invest in assets that outperform the inflation rate per annum to secure the real value of your savings over time.

Based on the All India Consumer Price Index (CPI), the year-on-year (YoY) inflation rate for May 2025 over May last year was recorded at 2.82 per cent. However, this is an exception. Historically, “the inflation rate has averaged around 6% in India, which means a retirement corpus in current times needs to be much larger than what was needed a decade ago to maintain the same lifestyle,” informs Nikhil Aggarwal, Founder & Group CEO, Grip Invest.

2. Rising Healthcare Costs

Healthcare inflation has been a pressing problem in India and across the globe. A large number of people lose their lifetime savings while handling a healthcare crisis in the family. Thus, it’s extremely important to plan your retirement corpus, keeping healthcare and long-term care costs in mind.

As per a report by AON, the global average medical trend rate is expected to reach 10 per cent this year globally, and for India, it is expected to be 13 per cent .

“In 2024, healthcare inflation rose 10 per cent globally and 12 per cent in India, which was the highest ever increase in the last decade. This sharp rise in healthcare costs highlights the importance of factoring the same in retirement planning along with safeguarding with health insurance coverage,” says Aggarwal.

3. Taxation

Taxation not only impacts the retirement corpus accumulation phase but also the drawdown phase. Thus, you also need to be tax-efficient while planning your retirement.

“Choosing the right retirement plan that not only enhances your disposable income but also steadily builds your retirement corpus, which is crucial for long-term financial security. Several investment schemes such as ELSS, PPF, EPF, and NSS, etc., offer tax benefits at different life stages -- on the initial contribution, on the returns earned, and at maturity,” says Vishwas Panjiar, Partner, Nangia Andersen LLP.

You also need to select the appropriate tax regime, as it enables taxpayers to strategically reduce their yearly tax liability, thereby enhancing the disposable income available for investment towards retirement.

4. Longevity

With an increase in life expectancy comes the need to increase your retirement corpus to ensure long-term financial security. As per the World Bank, the life expectancy of an individual was around 73 years in 2023 compared to 68 years in 2000. This means that an individual needs to plan for a longer retirement period, making financial planning more important.

5. Risk and Rewards

Your investment performance directly affects your retirement corpus. And with the current dynamic financial landscape, it is extremely important to diversify across assets such as bonds, securitised debt instruments, mutual funds etc., along with investing in the traditional fixed return instruments.

A well-diversified portfolio is not only a safeguard against risk, but also increases your chances of building a future-ready retirement corpus.