Why are We Not Saving for Retirement?
Various experts have emphasized the need for retirement planning time and time again. It is regarded as a "High Priority Item" for those who intend to continue their existing lifestyle after they retire. Despite the importance and criticality, most people let this important planning slide down their priority list, and in some cases, it even drifts off the list. The main reason for this is that the relevance of retirement planning is yet to be comprehended and understood in a society like ours. Life goals, culture, savings behavior, family dynamics and lifestyle are some of the variables that often lead to procrastination. The end result - you are left with little at the time of retirement and are at the mercy of your family.
Why Retirement Planning?
The need for retirement planning arises simply because of four reasons
(a) loss of income / earning ability post
(b) increased life expectancy
(c) lack of adequate social infrastructure & support
(d) need to have a financially independent & dignified life
An increase in average life expectancy increases the need for retirement planning. So if your retirement age is say 60, you are looking at easily 20+ years of post-retirement life for a life expectancy of 80+ years. This is too long to ignore and even scary for many. For employees, the accumulated pension & gratuity is most often spent on things like buying a house, settling children with higher education or marriage or business, and so on. Often, little is left to continue with the same pre-retirement lifestyle even after retirement. Plus with age, health care costs also skyrocket. It is also often seen that children stay away from parents for better career opportunities and due to the nuclear family trend. All these factors make retirement planning perhaps the most important and critical element of your life. Retirement planning is a must.
Retirement Planning situation in India:
While there are no formal numbers, there have been many studies/surveys that highlight the sad reality of retirement planning in India. One of the surveys pointed out that nine out of ten ‘urban’ Indians worried about savings not lasting through retirement and that 80% of Indians were not ready for retirement. Another survey pointed out that half of the Indians do not have any retirement plans. The survey found that people are worried about the cost of living, healthcare issues and the lack of family support in future. It was also found that children’s needs and the security of the family take precedence over all else and that one in four of the respondents dreads the idea of being dependent on children or families in old age.
Reasons why retirement planning is avoided:
In spite of people knowing the need for retirement planning, very few adequately save for retirement planning if at all they do save. We have compiled a list of the reasons or excuses why people do not plan for retirement and our take on the matter.
- Low priority amongst life goals
As a society and culture, Indians, unlike western societies, have always worked hard to support their children for education, marriage and to see them settled. Whatever little we have, we would first prioritize saving it for the goals related to children, then home & family and so on. Retirement planning, unfortunately, and sadly, is ranked very low in priority.
There are a few things one can realize here. First, higher education can even be done by taking student loans, should your child be deserving to get admission to any reputed domestic or foreign university. Secondly, unless you want to splurge on marriage for your son/daughter for your own reputation, marriage should not be a big burden. Further, shouldn’t children share the financial responsibility of their marriage? After all, it's an important life goal and event for them too and they should at least contribute some part of it. For a change, marriages should be as per the status of the bride and groom and not of their parents. Days of dowry too are gone and today educated, working and successful women are highly sought after. Instead of saving for dowry, one should spend on educating and skilling our daughters.
- Too little to save
A fair argument can be made that little is available to save towards retirement after all expenses and saving for other life goals. But this only means that the future will be much more financially challenging for you. We can only say here that saving for retirement as early as possible, right after you start earning, no matter how small, will go a long way due to the power of compounding. The best time to start saving was then, the next best is today. What’s important here is to start saving and then slowly it will grow.
Another aspect here is investible surplus or savings. If you do not have adequate savings, your entire financial well-being is in question. A perplexing financial position can be frustrating and burdensome, but doing nothing about it will not make it better or go away. In reality, it's the time to sort things out and make actual efforts to untangle the mess. Perhaps it would be the right time that you sit on the table with your financial expert who can assist you in evaluating and comprehending your entire financial picture, as well as developing a plan to clean up the mess and make it work for you.
- Too early to plan / Procrastination
Many people live with the notion that they still have a lot of time left for retirement and thus they plan for other things. Often, this mindset takes you from “too soon” to “too late” before you even realize this while you were busy with other things like marriage, home, car, career, children and so on. Most of us would end up here unless we do something today. Remember, the later you start planning for retirement, the greater the financial burden of accumulating a larger sum for retirement. So don't put it off any longer; begin planning today!
- I don’t need to
There are certainly a few who think that their retirement is well taken care of. They assume that they have sufficient savings to last them into their retirement years. Unless one has a guaranteed alternate source of income, we can never be sure. There is a lot of uncertainty out there, as we have seen through the pandemic and the current war. We can never be sure of what the future holds. So, even if you feel you have saved enough for all expenses, health care costs, aspirations, retail inflation, economic uncertainty, unpredictable events and so on, we suggest you still save more for retirement if you can.
Conclusion:
Don’t simply retire from something. Have something to retire too!
The most effective retirement tool is time. If you have adequate time left, there is little to worry provided that you do not procrastinate/delay retirement planning any further. If you are out of time, then you need to sit down and work your math. Divert a significant amount of your efforts and resources to make sure that your retirement, along with that of your spouse is not compromised any further. There is a sound ground that you balance goals for your children and that for yourself too given the social trends before us. Explore things like creating alternative sources of income, delaying retirement, selling off your second home to fund retirement kitty and so on. We would suggest that you seek guidance from a financial expert to discuss this further.