One morning, over breakfast, I asked my father, “I am sure you have made arrangements for your retirement?” He thought for a second and replied, “Yes, you?” That is when it struck me for the first time, that my father is not even worried about his retirement. He has spent all his earnings in educating his children and buying a house for the family and is content with his achievements.
My father isn’t an exception. Most middle-class Indians can identify with this conversation. According to HSBC’s report, The Future of Retirement, nearly 68% of the working age population expect their children to support them in their retirement, perhaps due to their unpreparedness. In reality, only 30% retirees are actually getting such support.
The problem is two-fold: social and economic.
Elder abuse and abandonment are social evils more common than we can see around us. But quite often, these problems are rooted in the economic well-being of a family. The inability of a bread-earner to make ends meet causes frustration eventually leading to lashing out at young ones and old parents. Extreme situations conclude with graver consequences. Furthermore, saving for one’s own retirement is out of question for such individuals.
Here is an important statistic:
According to the U.S. Central Intelligence Agency’s World Factbook,India’s population of approximately 1.3 billion is growing at an average of 1.14%. That means India’s population will be 1.7 billion by 2050. Sixty percent of the current working age population will become old by 2050. That will be a staggering 44% of the population as senior citizens, a sea change from today’s count of 10%.
Working age Indians feel that roughly 58% of their current income could sufficiently provide for in their retirement. They are obviously headed for a surprise.
Mobile phones, internet bills, digital streaming subscriptions are the latest lifestyle expenditures that were not factored in along with inflation while planning for retirement only 2 decades ago
These new life style habits are also paving way to lifestyle related health issues. Expenditures on health are expected to rise while life expectancy is increasing. Does this not translate to a higher required corpus?
Indians rank highest on Aegon’s ‘Retirement Readiness Index’ at 7.3 which actually, is an average score. Before you jump with joy, let us understand what retirement readiness really means.
The Aegon survey is positive in tone in that they correctly recognise one thing: Most Indians who care for their retirement are aware of the inadequacy of social security in the country. As a result, most of them have made their own arrangements for their retirement! This preparedness may well be only perceived, not real.
In trying to make one’s own arrangements for retirement, the most commonly invested asset class that Indians use is real estate – a sector that has not been showing satisfactory growth lately. Couple this with the fact that this sector is highly cyclical in nature; investments in real estate can become illiquid when liquidity is most needed.
If one pauses to reflect, one will agree that there is a rising trend of credit funded lifestyle expenditures. Credit card loans grew 32% in the Q2 of 2018-19. Over the past decade, fresh financial savings of Indian households have more than doubled, but their financial liabilities have risen at double that pace.
If this debt were growing because individuals were left with less disposable income after saving for retirement, it could be regarded as just a feature of the Indian economy. If not, the writing on the wall is there for all to see – India, may be staring at a retirement gap. It could well turn into a crisis, one that it is completely unprepared for.
The author has close to two decades of experience in managing money for UHNI families, helping them to declutter their wealth and transmit it to the next generation. She is also a behavioural finance trainer and a visiting faculty at Praxis Business School. She founded the firm ABANWILL CONSULTANTS LLP in 2017 to provide independent views on investing. She may be contacted at Abaneeta@abanwill.com