Retirement Readiness: A 5-Step cheat sheet
You may have grown up thinking of retirement as a time to rest and enjoy the rewards of a lifetime of work and a steady income. But today, retirement is becoming far more complex.
Why do we say that?
Longer lifespans, inflation, and rising healthcare costs have led to a material shift in the retirement landscape as families transition from joint to nuclear structures. Even with greater financial awareness and more investment products, large portions of the population remain unaware for life after the last pay-check. Planning for retirement is not merely about saving but also about ensuring you can maintain dignity, independence, and peace of mind in your later years.
Yes, you may already be thinking about financial goals like buying a home, funding education, or saving for retirement. But retirement often feels like something far off — and that makes it easy to delay. The truth is, the sooner you plan, the more control you will have over the life you want later.
When you start prioritising financial planning, cultural priorities, family responsibilities, and a common proclivity to only consider short-term expenses related to income can lead to the goal of retirement being deferred indefinitely. According to a PGIM India Mutual Fund Survey in 2020, less than 51% of Indians have a retirement plan. In a dynamic environment facing emerging social and economic challenges, we must prioritise retirement planning as a necessity, not a luxury.
Now before we dive into the 5 steps for retirement readiness, let’s understand the underlying cause as to why most of us are falling short in our preparedness for a retired life.
Why Most Indians Don’t Have a Financial Plan After Retirement?
You might not have a retirement plan yet — and you are not alone. For many, this stems from deeply ingrained cultural and social beliefs. Traditionally, parents have relied on their children in their old age, regardless of how children lived their lives. This has changed significantly in recent years, with the trend toward nuclear families becoming more prevalent, as well as younger generations having greater financial independence. When families (conventional or not) change, many people in old age will find themselves unprepared financially.
Another primary reason people lack a retirement plan is that they rely too heavily on government or employer-sponsored retirement plans, such as EPF or PPF. These options are beneficial for support during retirement. Still, they typically do not meet one’s complete financial needs for retirement, considering inflation and the more extended period we are now living due to increased life expectancy. Many people believe they have saved enough for their total retirement income, but they often fail to account for the increased medical costs and lifestyle needs that arise as they age.
Retirement planning is often deferred at the expense of other essential goals, such as children’s education, buying a house, or making a living, until it becomes a priority in their minds. Most people only start to consider retirement planning seriously in their 40s or 50s; it’s often too late to benefit from the power of compounding when investing for the long term. If they do cultivate their savings, they usually fail to consider tax-efficient means and diversify their savings because they lack relevant knowledge.
One thing which you should consider is the increased risks associated with health when retiring. The surge in healthcare inflation, which is now outpacing consumer inflation, means that without adequate healthcare insurance or savings to use in an emergency, their savings are being depleted quickly, regardless of their recreational activity. This is exacerbated by people not being sufficiently prepared financially when they incur non-recurring, unexpected expenses that they will experience in their old age, particularly for basic lifestyle maintenance. Therefore, financial planning for retirement is crucial for the aging population in India’s long-term future.
From Gaps to Goals: 5 Steps to Fixing Your Retirement Readiness
Longer life expectancy, along with fewer joint families, emphasises the importance of planning for retirement. Now is a good time to consider how individuals in India make financial arrangements for their post-working life. To help you prepare, we have put together a checklist.
1. Start Early, Even Small Amounts
Example: Rhea is a marketing executive aged 25 years. She invests ₹ 2,000 per month in an equity mutual fund. At 60, Rhea’s corpus could very well exceed ₹1 crore.
The key point is that when you start early, even a small amount, you give your money the gift of time and compounding. It is not about how much money you invest at the start but instead how frequently you invest and for how long. Young earners often postpone saving for retirement to focus on short-term goals. However, when you invest in your 20s, you also develop the habit of investing and build a level of financial discipline. Over several decades, despite the differences in each month, if you invest the same amount, your money will have grown into a sufficient amount for your retirement.
2. Use Retirement Tools
Example: Mr. Sharma now 60 and recently retired, had activated a Systematic Withdrawal Plan (SWP) so that he can withdraw ₹25,000 per month with his mutual fund portfolio. The amount was outside of his pension and ensured he had cash flow available to cover his monthly expenses comfortably.
Retirement products were developed to address different sets of needs and opportunities in the retirement planning process.
The National Pension System (NPS) is a vehicle for the tax-effective long-term accumulation of wealth while you are building that wealth and working.
The Senior Citizens Savings Scheme (SCSS) is a secure investment intended for senior citizens that provide guaranteed returns.
Annuity plans provide a guaranteed income for your entire life regardless of how long you are in retirement.
A Systematic Withdrawal Plan (SWP) provides you the right to withdraw a regular amount from your investments as regularly as needed based on your cash flow needs.
3. Financial Literacy Initiatives
Example: A regional bank in Bihar held workshops in local vernacular languages on pensions and savings, resulting in a threefold increase in local enrolments in the NPS.
A lack of awareness—not apathy—has been cited as the primary reason for poor planning. We need to instil retirement literacy in young people while also reaching middle-aged and older cohorts in a manner that resonates with them.
Urban populations may utilise various digital tools to enhance literacy. In contrast, rural and semi-urban populations should be directed to local language-relevant and relatable outreach through schools, employers, banks, and NGOs. Meeting individuals with the right learning early on can alter behaviour before it becomes too entrenched.
4. Health Insurance Before Age 60
Example: Anita takes out a ₹10 lakh cover at 45. Now she is 65 and is having surgery, which costs ₹4 lakh, and it costs her zilch due to the low premiums she had been paying.
In India, medical inflation is estimated at 14% per year. That means income in retirement remains fixed, but there is no way to foresee what unforeseen costs can come at you with healthcare expenses.
Health insurance, when you are young, typically carries lower premiums and provides broader coverage, including protection against pre-existing diseases. Hospitalization without health insurance can be financially devastating. Health insurance protects you from loss more than it serves as a safety net. Health Insurance is an essential part of financial planning to protect your retirement corpus from unexpected medical expenses, including rehabilitation, tests, specialist appointments, and even medication.
5. Reach Out to a Financial Planner
Example: Ramesh, 45, began planning when his father became unwell. He had a Financial Planner devise a plan for him that included an NPS allocation, some mutual funds, and an insurance plan. This laid out a pathway to a planned ₹2 crore corpus by the time he retires at 60.
A financial planner effectively does what your GPS does. A financial advisor is someone who helps you navigate the complexities of financial planning while ensuring you do not make a costly mistake and ultimately achieve your destination.
Financial planners can help you develop a personalised plan tailored to your life stage, risk tolerance, and anticipated future expenses. Planners are qualified to recommend a diversified portfolio of assets with tax efficiency in mind, as well as a well-thought-out contingency plan that will likely give you better peace of mind at night, all while working towards becoming professionally prepared for retirement.
Retirement may be the end of your working life, but it’s only the beginning of making of spending your hard-earned money smartly. Don’t start your retirement planning late, but always remember that it’s never too late to get started. With life expectancy increasing, the rate of inflation in healthcare increasing, and changing families; retirement planning has gone from being an option to an absolute necessity.