How Indians plan their retirement, in 5 charts | Mint

How Indians plan their retirement, in 5 charts

Better financial literacy, increased access to financial advisors, and normalized discussions on money matters could improve retirement planning, especially in rural areas  (Photo: iStock)
Better financial literacy, increased access to financial advisors, and normalized discussions on money matters could improve retirement planning, especially in rural areas  (Photo: iStock)


Indians, across income groups and geographies, have a long way to go when it comes to financially securing themselves for a comfortable retirement, suggests a new survey by Sambodhi Research and pinBox Solutions

Most Indians (52%) expect their children to provide them financial stability when they get old, with 28% yet to start saving for retirement, a new survey has found. Rural Indians know less of old-age financial planning needs, and also save less, often due to uncertain income flows, found the ‘Digital and Financial Inclusion Barometer’ survey by Sambodhi, a research group, and pinBox Solutions, a global digital micro-pension inclusion platform. Better financial literacy, increased access to financial advisors, and normalized discussions on money matters could improve retirement planning, especially in rural areas, experts said.

1. Savings pattern

One’s savings pattern is shaped by several factors, such as where they live and how much they earn. Around 55% of urban respondents prefer to save monthly, but this tendency reduces for poorer cohorts. Those earning less than 50,000 a year are nearly as likely to save monthly (31%) as to save “as and when they can" (29%).

Rural Indians’ preference is split between saving monthly (38%) and as and when they can (39%). Those earning less than 50,000 a year are highly likely to be saving as and when they can (87%), while just 4% save monthly.

This can be explained by the prevalent nature of incomes. Most urban people tend to earn on a monthly basis (71%), while rural earnings are split across seasonal (31%), monthly (27%), and daily (24%), the survey found.

The survey was the first in a longitudinal series, and had 12,167 respondents, 65% of whom were in urban areas.

2. Self-reliance vs children

Most urban groups, across ages, largely believe (65%) they will have adequate savings for their old age, though this belief declines for poorer respondents. Yet, urban Indians are also highly likely (56%) to see children as their financial support system for the future. Both trends are more pronounced in older people (above 35) in all income categories.

Around 52% of the urban respondents aged 18-35 expect their children to take care of them when they turn old, while the same is true for 60% among the older group.

Among rural Indians, the confidence in one’s own savings is markedly lower (50%) than in their urban counterparts. In the lowest income group, fewer than one-third rural people express such confidence. However, this does not make rural respondents any more reliant on their children for their old age: rather, in some demographics, they are far less likely to do so than their urban counterparts despite constrained incomes.

3. How much to save?

Poor planning can lead to insecurity around post-retirement financial stability and subsequent dependency on children. With rural Indians far less confident of building a healthy corpus, the only way out is to start early.

But in rural India, as many as 22% of those aged above 35 say they do not know how much they should save exclusively for old age, the survey found.

One can save more in their twenties, given fewer familial responsibilities at that age, said Sivanath Ramachandran, director of capital markets policy (India), CFA Institute. “A clear understanding of one’s goals, personal circumstances, income and growth in totality will help decide the [amount to save]," he said.

Over 40% respondents said they should be saving less than 10% of their income for old age. Financial planners believe this is too less to be saving for retirement: Ramachandran said it needs to be at least twice or thrice of this.

4. When to start?

When should a person start putting aside money for the sunset years? Experts believe it should begin from the early twenties to fully exploit the wonders of compounding. However, the survey shows that most earners see the right time after the age of 25. In urban India, the median age when respondents say one should start thinking about retirement savings is 26, while the same is 28 for rural respondents.

However, this may not reflect in their actions. For earners in urban areas, only 73% in the 18-35 age group said they had already started saving, while for 35 years and above, the figure was 84%. In rural areas, only about 60% said they had already started saving, with little age-based distinction.

Unlike in urban areas, in rural India, the poorest group is the most likely to set aside money for the future “whenever they can", possibly because of their uncertainty of steady income, the survey report noted.

5. Entry-exit barriers

Retirement products essentially have low liquidity and attract heavy exit loads. But the survey shows that most savers prefer their money not to be locked in for long, especially low-income urban respondents. Most expect retirement products to have easier entry and exit options and to be accessible anywhere.

Current plans, however, don’t seem to match up to these needs. For instance, the government’s National Pension System (NPS) allows only three withdrawals during its tenure, spaced at least five years apart.

Having the flexibility to put in deposits as and when one can and in small increments is important for the low-earning workforce, with over 75% in both urban and rural India wanting this in a retirement product.

Financial planners Mint spoke to agreed that flexible instalments rather than lump sum amounts could make retirement products more attractive.

Meanwhile, the survey found that receiving tax benefits is a preferred feature among urban savers but not so much among rural ones.

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