Indians are today saving and investing less and focusing more on current expenses than future planning. Retirement planning, in fact, comes way down in their list of priorities, and is positively correlated to income, not age. This shows that Indians plan for retirement when they have surplus money, and can save without sacrificing current comforts, according to PGIM India Mutual Fund’s Retirement Readiness Survey 2020.
The survey reveals that most Indians cite their children’s needs (education, marriage etc.) and their family’s financial security as their top priorities. After that, they are mindful of the looming possibility of medical emergencies, and the importance of physical and mental wellbeing. Further down the list, they desire a comfortable, stress-free lifestyle. Many are reluctant to take on long-term financial commitments that might affect their current standard of living.
Indians have also tended to rely heavily on their children, likened to a reverse mortgage, promising to leave their wealth to children in return for care and financial support in old age. Joint families would once instil a sense of financial security, but as the young migrate and nuclear families proliferate, this contract is fraying. Indians are becoming more self-sufficient, seeking less financial dependence on their families after retirement. A quarter of Indians say the dread of being dependent on family is a major trigger for retirement planning.
“Retirement is seen by Indians as an important but distant prospect. Instead, Indians prioritise more proximate contingencies like illness or accidents. More than half of urban Indians have made no retirement plan at all (the average age by which they say they will have a plan is 51). When they do plan, the average respondent assembles a corpus of around Rs 50 lakh, or about 8.8 times the average annual income. But even those who plan often make ill-advised plans without assessing their own requirements, and fail to make adequate provision for contingencies like inflation. Retirement is at the bottom of most people’s list of priorities – their children’s needs (education, marriage etc.) and financial security come first,” says Ajit Menon, CEO, PGIM India Mutual Fund.
Urban Indians today are saving and investing less, while allocating nearly 59% of income to current expenses. Of this 59%, household expenses account for 35% points, while the rest is split roughly evenly between rent, EMIs and home loan instalments. The survey finds that allocation of household income to savings and investments has fallen from 34% to 30% over the past two years. This is reflected in the stagnation in household savings over the last decade. Between 2011-12 and 2017-18, India’s domestic savings rate fell from 34.6% of GDP to 30.5%. The fall in the household savings rate was even greater, from 23.6% to 17.2% (savings in physical assets saw the sharpest fall, from 15.9% of GDP to 10.3%).
Indians, however, worry about the cost of living, healthcare issues and the lack of family support in the future. 57% of Indians cite managing the cost of living as their main concern for retirement. 55% raise concerns about healthcare expenses, while another 50% worry they won’t get support from their family in the future.
Cultural shifts are making retirement planning a more urgent priority. 26% of Indians say a crucial trigger for retirement planning is the dread of being dependent on their children or family. This is a profound shift in a country where close-knit families have often served as a safety-net for the elderly and the infirm. As the young migrate away from hometowns and live by themselves, their parents are unsure whether they will be able to live with their children in old age, as their own parents did.
As economic issues bite and employment falls, many fear their children may be unable to fend for themselves – and that their ability to help will decline with age. Thus, they feel compelled to plan for retirement, not just to be self-sufficient, but also to be able to provide for their children if required, undermining the ‘reverse mortgage’-type care arrangement that has traditionally supported them.