The Retirement Gap: Why India Cannot Afford To Wait

It's a warm summer evening in the 1990s. People are back home from work, the elderly have returned from their evening walks, and kids, still full of energy during their summer holidays, slowly start coming back inside. Everyone heads to that one house in the neighbourhood, the one with the newest TV, because their favourite daily show is about to start.

Shows on Doordarshan brought everyone together. They gave us a glimpse of how people lived and dreamed. Interestingly, retirees were shown wearing simple clothes, sipping tea, reading the newspaper. Retirement meant slowing down and living comfortably on a modest income.

Changing Face Of Post-Retirement Life

Today, things are very different. Retirement is no longer just about taking it easy. People want to stay active, travel, follow their passions and keep up a lifestyle they’re used to. 60s is the new 40s as they say!! 

“Retirees may still want to peacefully sip a cup of coffee, but they may want to do that on a vacation at a picturesque location in India or abroad. Indeed, while this may have seemed far fetched 3-4 decades ago, such aspirations and lifestyle choices are becoming par for the course today. Lifestyle inflation today makes conventional perceptions of retirement quite obsolete.  Retirement planning has become more critical today than it ever was,” says Navneet Munot, MD & CEO, HDFC AMC Ltd.

Rising Life Expectancy And Surging Healthcare Costs

With Indians living longer, their average life expectancy is now around 70.8 years. Retirement isn’t a short phase but a significant life stage. This extended period, coupled with soaring healthcare costs, demands careful financial planning. All over the world, medical inflation is making medical treatments expensive year after year. A major illness can cost lakhs, eroding savings. With our elderly population set to reach 38 crore by 2050, securing your financial future for these golden years is absolutely vital.

Most Critical, Yet Most Ignored Financial Goal

It would be fair to say that retirement planning is by far the most critical financial goal owing to multiple factors. Firstly, for most people, retirement is a certainty. Secondly, with medical advancement and increasing life expectancy, the number of years one lives post-retirement has increased; however, the number of years is an unknown variable which makes retirement planning critical, yet challenging.

“This uncertainty means a retiree might need to fund expenses not just for a few years, but for decades. Further, considering that retirement is a goal which is in the distant future, most people tend to put off planning for retirement till it’s too late. And even those who do plan, undermine the impact of inflation (both, price and lifestyle) over a long time-frame,” says Munot.

Disconnect Between Expectations And Reality

Numerous studies have highlighted how there is a mismatch between retirement aspirations of people and their financial plans for the same. Many young professionals today dream of retiring earlier than their parents did. They picture a life of freedom and pursuing passions, not just endless work. However, there’s a growing gap between these dreams and their financial plans.

Cycle Of Nations - Young Today, Aging Tomorrow

India today is at an interesting juncture. Today, we are the most populous country in the world with a large young population. While headlines focus on our demographic dividend, we need to take cues from our peers and chart the path ahead. A case in point is that of China, the country we overtook on the population leader board. While an aging and shrinking China has many implications for the global economy, it has also brought into focus the potential challenges that could be faced by the elderly, especially in an aging country, where the working age population could be outnumbered by the elderly.

4-2-1 Problem

With an inverted pyramid, also known as 4-2-1 problem (4 grandparents and 2 parents being dependent on a single child) and lack of social security benefits, China is staring at a demographic predicament. Although, India’s population is relatively young (median age of 28 years vs 38 years for China) and is expected to decline only after 2050, steps in the right direction today could avoid the possibility of a large greying population without any means for sustenance.

“As ironic as it may sound, gradual increase in life expectancy (doubled from ~35 years in 1950s to ~70 years now and is expected to increase further) makes matters worse.  Today, India has an elderly population of ~15 crore, i.e. around 10 per cent of the total population. By 2050, this number is expected to reach ~35 crore or ~20 per cent of the population. To put that into perspective, that’s approximately the current population of the United States,” informs Munot. 

The Case For Long-Term Wealth Creation

For all its inevitability, retirement still remains the most deferred financial goal for many. A home, a car, a child's education; these feel urgent and immediate, and they consistently take precedence. Retirement always seems far away enough to plan for later, until later arrives sooner than expected.

“By the time most people turn their attention to it, the runway to build a meaningful corpus has shortened considerably. The solution is not complicated, but it does require discipline and an early start. Investing consistently in equities, through equity-oriented mutual funds, could be the most effective way to help build a retirement corpus which could be large enough to fund the life one actually wants to live,” advises Munot.

Conclusion

From shared laughter in front of a neighbourhood TV to an idyllic evening at a scenic location, retirement aspirations in India have come a long way. What was once about slowing down is now about living fully and living longer. “But dreams need planning. With change in lifestyle and increase in lifespans, relying on old ways will not work anymore. Increasing awareness about retirement planning and creating conducive environment for long-term investment in equity assets could be the way to go,” observes Munot. 

It is often said that China is growing old before growing rich. While India, on its part, has always been culturally and spiritually rich, it is high time that economically too, we grow rich before growing old.