Our cover story explores the unique hurdles and opportunities that arise at different stages of planning for life after work. Whether you’re just starting to think about retirement, actively building your nest egg, or already enjoying its rewards, this issue is packed with insights, strategies, and inspiration to help you achieve the financial freedom you deserve.
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Challenges for young earners
Khushal Aggarwal is a careful spender but he has nothing left at the end of the month to put away for his golden years. “I have more important goals than planning for retirement,” says the Delhi-based coaching teacher. High expenses is a common reason why many young people are not able to save for their retirement. The India Retirement Index Study (IRIS) by Max Life Insurance found that adequate family wealth, dependence on children and the absence of a trusted adviser also kept people from saving for their sunset years.
Why working professionals don’t save for retirement
Dependency on family and generational wealth remain among the top reasons to not start retirement planning.
Enough family wealth
42%
Children will take care
41%
Too early to think about retirement
34%
More important things to consider
31%
No trusted adviser
31%
Source: IRIS 4.0 study by Max Life Insurance and Kantar. The survey was conducted among 2,077 respondents.
For primary earners like Aggarwal, saving money while managing household expenses on a tight income can be challenging. However, experts say a low income should not be a barrier for saving for this crucial goal. “Unlike other financial goals, such as buying a home, funding education, or travelling, retirement is non-negotiable; postponing it may impact one’s quality of life in the later years,” says Kurian Jose, CEO, Tata Pension Management.Delaying the decision can prove costly because you will have to invest more to reach the targeted amount. At 25, a person will have to invest only Rs.14,717 a month in an option that earns 10% returns to build a corpus big enough to provide a retirement income of Rs.1 lakh per month at the age of 60. If he delays the decision by five years, the monthly investment required rises to Rs.27,652. Wait for another five years, and the required amount shoots up to Rs.53,441.Don’t be surprised by the huge difference in the amount required if you start late. Compounding is at work here. Keep in mind that the early starter also increases the amount by 10% every year. Even so, the investors who delay the decision will have to save higher amounts to reach the required corpus. A person who delays the start till the age of 40 will need to put away Rs.1.08 lakh per month, which is Rs.46,108 more than the monthly sum required if he started at 25. “Don’t underestimate the power of compounding. Even if you feel strapped for cash, cut down on non-essential expenses and prioritise retirement savings,” advises Prashant Tripathy, Managing Director & CEO, Max Life Insurance.
Use magic of compounding
Money saved during early working years plays a big role in the retirement corpus. Savings in your 20s and early 30s create the foundation for compounding to work its magic. Even larger contributions made in later years won’t have the same impact. If you invest for 30 years and increase the amount by 10% every year, what you saved in the first 15 years will account for almost 70% of the total corpus at 60. The early investments do the heavy lifting over time and form the bulk of the retirement corpus.
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Warren Buffett, has some advice for young earners who find it difficult to save due to high expenses. He says, “Don’t save what is left after spending, but spend what is left after saving.” It’s a simple solution for a generation that prioritises enjoying the present over planning for the future.
To get Rs.1 lakh per month in retirement…
… you need a corpus of Rs.2.26 crore to sustain monthly withdrawals for 25 years. Withdrawals will increase by 6% every year to keep pace with inflation. For a 25-year-old, 6% inflation will push the required amount to Rs.17.37 crore when he turns 60. An early start makes it easy to reach the target.
ASSUMPTIONS : For these calculations, inflation taken at 6% , pre-retirement returns at 10%, post-retirement returns at 8%, and annual increase in investment taken at 10%
A disciplined approach and small adjustments can help young earners like Aggarwal achieve the target. Formulating a budget is your first step. Start by listing out all your expenses in a month, which will tell you where the money is going. Identify the unnecessary expenses that can be curtailed. If you are disciplined, you will be able to allocate the required funds to retirement savings.
Don’t depend on children
Four out of 10 respondents in the IRIS study by Max Life Insurance said that they were not saving for retirement because their children would take care of them in their old age. Indeed, for many people their children is their only retirement plan. Meet Kunal Sharma, a Jaipur-based logistics manager who has put retirement savings on the backburner and is focusing on saving for his child’s education. “In our family, it’s a tradition that children take care of their parents in old age. I’m focusing on giving my child the best education and upbringing. When the time comes, he will support me,” he says.
Though many Indians may agree with Sharma, this arrangement is fraught with risks. Depending on children in retirement can be problematic for several reasons. For one, the joint family is slowly giving way to the nuclear family set-up in urban India. The children may have their own financial obligations and the parents’ financial dependence on them might put pressure on their resources, lead to resentment and strain the relationship. “Children often have to balance their own financial responsibilities. They may feel the strain of supporting their ageing parents,” says Jose. Sharma’s reliance on his child for financial support can create dissonance if the child is unwilling to do it.
Many young professionals know the importance of building a sizeable retirement corpus, but still delay saving for it. Their motto is, ‘you only live once’. Take 29-year-old Ratul Mohindra. He wants to save tax and build a healthy retirement corpus, but has steadfastly stayed away from joining the National Pension System (NPS). “I don’t want to lock my money away for the long term in the NPS,” he says.
Little does Mohindra realise that the NPS is purpose-built for retirement. The very idea of retirement savings is that these shouldn’t be touched until you actually stop working. Besides offering tax benefits, the NPS instills financial discipline, ensuring that you stay on track for achieving your long-term goals.
Plan beyond finances
Securing your finances is important for a care-free retirement. However, staying healthy is equally important. As we age, medical expenses tend to rise, and if you have not paid enough attention to your health, these costs can deplete your retirement savings. Healthier individuals are less likely to encounter costly health issues. “Having a sedentary lifestyle might seem harmless when you are young, but it can drain your finances later,” says Priyank Shah, CEO, The Financialist. Building healthy habits, such as regular exercise and a balanced diet, from a young age not only helps control future medical costs, but can also lead to lower health insurance premiums, safeguarding more of your retirement nest egg. The good news is that it costs nothing to complete 10,000 steps each day. “It will ensure a more financially secure and fulfilling post-retirement life,” says Jose of Tata Pension Management. Retirement might seem far off, but the decisions you make today can significantly impact your financial security later.