At Retirement: Can we take care of ourselves??

Our country’s significant populations has no social security at the time of retirement and old age. It is far, far away from the bliss and happiness everyone hopes for in this phase.

In India: Retirement – not so golden for many 

Various studies based on the last national census (2011) suggest that about 60-70% of the aged in the country had to depend on others for their day-to-day maintenance. The others here are generally their own children; spouses, grandchildren and sometimes even non-relations included. Moreover, of those who had the fortune of being economically independent, 90% had to support one or more dependents.

Like the old internet joke comparing human life span with animals goes, for the first 20 years of our life we eat, sleep, play, and enjoy ourselves. For the next 40 years we slave in the sun like a donkey does, to support our family. For the next 10 years we do monkey tricks to entertain the grandchildren. And for the last 10 years we sit on the front porch like dogs do and watch others go by their lives! Old age is supposed to be that part of one’s life which is care-free, holidaying, spending time with the grandchildren, doing things one always dreamed of in their hurry-worry-filled work phase.

In keeping with the global trend, life expectancy of India has been rising over the years. It was around 66 years in 2010, and retirement age varies in different sectors, ranging from 52 years to 65 years. But this blessing of rising life expectancy translates to another unfortunate trend: the proportion of the oldest elderly (aged 80 years and above) among the working population is relatively high in India compared to many other countries. A majority of the elderly work due to economic necessity and not out of choice or chance. And of course a majority of these elderly workers are self-employed because employers do not prefer them due to their declining state of health and energy.

Almost 85% are not covered! 

In India only a few fortunate seniors have pension, the rest has neither pension nor savings of their own. Figures point out that only about 10-15% senior citizens, most of who have been in government service are entitled to pension. This means that roughly 8 out of every 10 non-working senior citizen in the country gets no pension. The statistics is better for retirees in the urban areas but only slightly; about 16% senior citizens get pension compared to 10% in the rural areas, according to a UNFPA report.

The scope of pension is seemingly limited to government jobs alone hence it is not a surprise that so few senior citizens earn pension. Private sector employees in the organized sector have the Employee Provident Fund (EPF). However the organized sector represents only about 10-15% of India’s total working population. The overwhelming majority of the aged Indians has been employed in the non-organized sector, where employment conditions are poor and is reflecting in pitiable post-retirement benefits.

So where do we stand?

Do we have any idea that how much money would be required to maintain the current lifestyle after our retirements? Lets look at it more logically and mathematically: If we are in our 30's and presently live on a modest Rs 20,000 per month budget (EMI's excluded) then this would transform to more than Rs. 1.43 lakhs even if we take inflation at 5%. And if the inflation goes up by just 2% to 8% the expenses will go up by almost double to Rs. 2.51 lakhs by the time we retire after 30 years. The table given below may give much better idea on this

When we see the figures we stop thinking on where we are on our own journey to retirement. Generally most of us dislike thinking of ageing, forget preparing for it…However there is a way to tackle this situation more intelligently, and with a little bit of planning and efforts retirement could be an extended holiday that we actually look forward to! 

So how to do it?  

Most of of us are employed in the private sector, there we would have to patiently build the old age nest egg by ourselves. But this could be a blessing in disguise as we have the liberty to invest our savings wisely rather than being compelled to park retirement savings in fixed income financial products whose yields are comparatively lower than growth assets. As for those employed in the government sector that may have some form of pension to fall back on during their golden years, in all likelihood such pension alone would barely be sufficient to see them through. They too would have to invest for building a sufficient retirement corpus.

Now regardless of which group of the two we belong to, we can confidently aim at gifting ourself a generous self-made pension by investing systematically in mutual funds. Here is a suggested investment guide for building your retirement corpus with mutual funds.

Years to retire	Suggested investment
5-10 years or more	Equity funds with combo of large, mid and small cap funds
Less than 5 years	Balanced Funds with some part in large cap funds

The most important point here is to start as early as possible. For an illustration, suppose that at 30 years of age you begin building the corpus with a monthly allocation of Rs 7,000 earning a 13% yearly return, at 60 years you would have accumulated about Rs 2.63 crores. What if you delay by just 3 years? This corpus would be short of almost Rs 83 lakhs; i.e. your end corpus would be around Rs 1.80 crores.

Mutual funds offer a standardized option for making monthly investments in any given fund and this is called by the name SIP or Systematic Investment Plan. Start an SIP as suggested in the table above and consider retirement investment as a mandatory deduction similar to our old investments called as PF! But remember that ultimately our choice of investment should depend on factors such as risk appetite (which is a function of our age to an extent) and asset allocation needs. Hence also consult a Financial Expert so as to select the most suitable choices for your goal.