Only 18 per cent of Indian investors think of retirement as a priority investment goal, observes the fourth edition of Trust Study Report released by the CFA Institute. Globally, half the investors keep retirement on top of their investment list.
Saving for retirement not a priority
“Most Indians look at their children’s education and wedding as priorities. There is also a tendency to prepay home loans,” observes Amol Joshi, founder of Mumbai-based Plan Rupee Investment Managers. Naturally retirement takes a back seat. However, it should not be the case, he adds.
It’s not just children who take up a household’s priority when it comes to planning for retirement. Suresh Sadagopan, founder of Ladder7 Financial Advisories says that he has often observed couples putting their other short to medium-term needs and wants ahead. Retirement, he says, takes a back seat because “they feel that it’s many years away. A large part of our population is young. Other goals such as house and car purchases and vacations are on the minds of investors instead of planning for retirement,” he says. “Waiting till you turn 45 to start planning for retirement is not such a good idea,” Suresh adds.
A disaster waiting to happen
Easy availability of loans has also led to people spending their earning years in paying equated monthly instalments, instead of saving for their future. The present COVID-19 pandemic has made matters worse. Employment patterns are undergoing major changes because of the disruption caused by factors such as changing technologies, consumer preferences. These are not only going to change employment terms and conditions, but would also impact compensation structures and retirement benefits.
Increasing longevity is one more reason to save for retirement. Typically, individuals are expected to live up to 80-85, which is 20 to 25 years after their formal retirement.
“As a large chunk of our workforce is employed in the unorganized sector, they tend to have little access to formal retirement planning solutions. The advent of nuclear families further makes it necessary to plan for retirement,” says Vishal Dhawan, founder and chief financial planner, Plan Ahead Wealth Advisors.
Save as you earn
Starting early helps. For example, if you invest Rs 5000 every month in an equity mutual fund for 30 years, you accumulate Rs 1.53 crore, assuming your fund earns 12 per cent returns.
“Traditional retirement planning products offer stability, whereas market-linked products such as equity funds offer returns that beat inflation,” says Suresh. Invest in the employees’ provident fund (EPF) and national pension scheme (NPS) for stability. The public provident fund (PPF) is another useful avenue.
The CFA Institute survey notes that 93 per cent of Indian investors eligible for a state-sponsored financial benefit in old age trust it will pay out benefits as promised versus 62 per cent of investors globally.
A 10 per cent allocation to gold is always recommended as it helps in volatile times.
Don’t ignore inflation
According to CFA Institute Trust Study Report, 94 per cent trust that their investments will provide them enough wealth so that that they will not need to work past their desired retirement age. But inflation can eat into your returns. If you underestimate your retirement corpus and don’t plan adequately, your corpus can get exhausted earlier than needed. “Also, do not be too conservative if you have a long career ahead. Take exposure to market linked investments such as diversified equity funds to earn inflation-beating returns,” adds Joshi.