20 percent of India's population should start retirement planning before retirement

20 percent of India's population should start retirement planning before retirement

Half of India's population is below the age of 30 years, which means that 59 years should be the age of retirement and thirty-two years is when one should ideally start retirement planning, according to a survey conducted by HDFC Pension.

Only 20 percent believe that serious retirement planning should start before the age of 30. This proportion is higher amongst males, salaried and higher income groups.

According to the survey, 70 percent of the population were salaried and 30 percent were business owners.

For most people, savings are usually channelled towards the education of their child or set aside for future medical expenses.

In lower-tier markets, child's education/marriage takes precedence, while retirement planning takes a back seat compared to metros.

The objective of the survey was to understand consumer sentiment towards retirement and determine consumer familiarity, appeal, and consideration, leading to the tracking of the consumer over time.

With respect to retirement, an industry norm is the 30X rule, which means that your retirement corpsus should be at least 30 times your annual expenses today.

Inflation should be taken into account.

Motilal Oswal said that inflation expenses are always a regular part of the equation. In 30 years, this amount would have multiplied due to inflation. If you have an average inflation rate of 7% every year, you would need Rs. To meet the same expense 30 years from now, he said, 380,600 dollars would be enough to cover the same expenses. If you are 50 years old and your annual expenses are Rs 9 lakh, then as per the 30X rule, then you need 30 times Rs 9 lakh to retire comfortably. It is Rs 2.70 billion. The research suggests that the post-retirement financial corpus is estimated at an average of Rs 1.3 crore, which is observed to be less than 10X of their current annual household income, reflecting the need to educate consumers about the recommended levels of retirement corpus.

Bankbazaar's CEO, Adhil Shetty, considers that it's a wise decision to invest 20% of one's income into a retirement fund in your 20s. You could gradually scale up the contributions to 30% in your 30s and 40% in your 40s, or to the highest extent that your income and savings allow you.

As a matter of fact, Shetty says, the earlier you invest, the less you will have to invest to build a higher retirement corpus. If a 25-year-old investor wants to invest in real estate, let us assume that he will invest in a sum of Rs. He spends 5,000 per month on his retirement corpus. If he were to retire at the age of 60, he would have invested Rs.60000. Rs. 21 lakh has been released by the Indian government. With an average return of 10 percent, the investor would have a financial corpus of Rs. 1.9 crore at retirement.

Now, if the same investor had waited for five years to start his retirement planning and started at 30 years of age, even a higher investment per month would not have generated such a high corpus. If he had invested Rs 7,000 per month for the next 30 years, his total corpus would be Rs.2000. Rs.1.5bn IPO worth Rs.1.5bn.

PPF holdings are tax-free as are equity investments greater than 12 months on which security transaction tax has been paid, Shetty said.

The majority of retirement products must provide security of capital, tax benefits, and continued income after death. While NPS is a relatively new instrument, NPS ownership is just 24%, with attractive features like tax-free withdrawals, safety has a relatively higher appeal among those enrolled for NPS compared to all consumers.

The study also found that retirement years were not the only factor that contributed to the death rate.

The consumer research study was conducted between August and September 2023 across 12 cities in India among NCCS A, annual household income above Rs 10 lakhs.

The biggest worry post-retirement had been rising healthcare costs, followed by illness and ageing. At least 64 per cent said healthcare expenses would be the biggest expenses post-retirement.