Are Indians grossly underprepared for retirement?
Not a priority
A recent survey by PGIM Mutual Fund revealed that retirement comes far down most people’s list of financial priorities. According to the findings of the report titled 'PGIM India Mutual Fund Retirement Readiness Survey 2020', most Indians cite their children’s needs (education, marriage etc.) and their family’s financial security as their top priorities. After that, they are mindful of the looming possibility of medical emergencies, and the importance of physical and mental wellbeing.
(Text Source: PGIM India Mutual Fund)
(Text Source: PGIM India Mutual Fund)
The underprepared urban Indian
More than half of urban Indians have not planned financially at all for their retirement. 51% of respondents said they had made no financial plans for their retirement (although this number drops to 25% among those who have an alternative income source). More worryingly, 42% have neither an alternative income source nor any retirement plans.
The age factor
Wealth goals change as consumers grow older. When asked about their wealth goals, 58% of younger consumers cited fundamental concerns like generating higher returns on money, while 56% spoke of becoming financially secure. On the other hand, older consumers had a wider horizon – 51% looked to generate income by starting a new business, while 51% sought to develop an alternative source of income, and 47% sought to earn passive income.
Wealth goals also change with increasing income. 52% of those earning below Rs 75,000 per month are focused on financial security, compared to 43% of those earning above that figure. On the other hand, 47% of those earning above Rs 75,000 are focused on monetising their hobbies and areas of interest, compared to only 35% of those below that number.
Anxious about the future
Indians worry about the cost of living, healthcare issues and the lack of family support in future. 57% of Indians cite managing the cost of living as their main concern for retirement. 55% raise concerns about healthcare expenses, while another 50% worry they won’t get support from their family in future.
The joint family support system
Joint family units foster a greater sense of financial security and freedom. 89% of respondents living in joint families reported feeling financially secure. Conversely, only 64% of those who lived in nuclear families said they felt financially secure. Both of these measures did not change much by age or income. The joint family is thus perceived as an important support-system in retirement.
Retirement plan? No thank you
Some Indians say they simply don’t need a retirement plan. Of the 51% of Indians with no retirement plan, 55% simply say they don’t need a retirement plan to achieve their goals in life. These often tend to be middle aged (41-60) respondents from metros, who either run businesses or are self employed, and typically have alternative sources of income.
41% of respondents said they had focused their retirement investments on life insurance, while 37% preferred fixed deposits. This underlines the essential conservatism of most retirement planning, and the preference for solid investments that minimise risk. Other popular retirement investments include health insurance (favoured by 15% of respondents), gold (15%), recurring deposits (14%), POSS (14%), NSC/ NSS (9%) and property (9%).
Indians tend to account for personal events, but neglect external events when planning for retirement. While 54% said their plans cover or will cover unexpected personal events (hospitalisation, sudden disability, critical illness etc.), only 33% of Indians said their plan covered or will cover for critical external events like economic slowdown, inflation, stock market volatility or instability in government regulations or interest rates.
Lack of awareness
Uncertainty about the corpus deters retirement planning. Of the 48% of respondents who were unsure of their required corpus, 69% ended up making no retirement plan at all. Conversely, of the 52% who say they are aware of the corpus they will need, 66% have a retirement plan.
Ray of hope
Most Indians are keen to have a knowledgeable financial advisor. When asked what they look for in an advisor, 77% of Indians said they would prioritise in-depth knowledge of products, while 67% said market awareness was important, and 61% said they looked for sensitivity to customer needs.
Good advice pays
Most Indians are aware of the advantage of having good financial advice. When asked what they thought they would gain from seeking financial advice, most respondents cited a wide range of benefits. 69% cited the likelihood of getting better returns, while 55% mentioned the need to build a diversified portfolio, and 53% said they hoped to reduce the risk of losses.