Retirement Planning: Hot money tips! Save today for financially secured and stable future

Retirement Planning: As the Indian youth today do not value saving for retirement, social security post-retirement is a major concern in India. Retirement accounts play a very limited role in household balance sheets, even among the wealthy sections. The provision of financial security in retirement is critical for both individuals and societies as most countries are now grappling with the social, economic and financial effects of aging populations. The major causes of this demographic shift are declining birth rates and increasing longevity. But it is not only the aging populations that represent challenges for pension systems around the world. The current economic environment with historically low-interest rates in many countries and reduced investment returns are placing additional fiscal pressures on existing retirement income systems. Now, more than ever before, it is important to have a sustainable pension system.

Speaking on the importance of retirement planning Supratim Bandyopadhyay, Whole Time Member — Finance at PFRDA said, "The concept of retirement preparedness is changing rapidly. Today’s workers find themselves in a very different world from that of their parents. In many countries, the presence of traditional generous government pension is disappearing and millennials are seeking non-traditional job profiles. Although, it is suggested that one must start saving for retirement as soon as s/he starts earning, today’s youth fail to realize this at the appropriate phase of life as they mostly believe in living their life for today rather than planning for the future."

Bandyopadhyay went on to add that it is now time for a new social contract; one in which we don’t only take stock of the changes taking place around us today, but we also embrace the economic and social realities of tomorrow. First, in a world where responsibility for preparing for retirement is shifting from government and employer to an individual, we need to ensure that there is universal access to enable people to save for retirement. Financial institutions, community groups and other nonprofit organizations need to work together to develop long-term saving products that encourage people to save. By doing so we will be able to serve vulnerable groups, such as those working on a freelance basis or taking time out of work to care for family and loved ones.

Second, retiring at 60 is no longer financially viable for many in employment. This means that we, as individuals and as a society, need to look at our working lives in a fundamentally different way. A traditional career trajectory that involves taking on additional responsibilities over time by abruptly stopping work and leading a sedentary life at destined pension age is becoming a thing of the past. It needs to be replaced by a more flexible approach and the ability to transit into retirement, be it by reducing hours or working in a different capacity. A new perceptive needs to be developed to address the challenges of ageism. Third, at the same time keeping good health is essential for people’s ability to work longer and enjoy their retirement.

Most of the other developing countries – and most certainly developed countries – have implemented some form of universal social security, which provides a state-sponsored (or self-financed) safety net to people without any source of income, or provides sustainability for periods of unemployment. Going by the pressures on the fiscal and the current debate on economic reforms, it will be prudent to contemplate whether India needs to implement an auto-enrollment program for a universal social security system. India’s retirement income system comprises of an earnings-related employee pension scheme, a defined contribution employee provident fund, and supplementary employer managed pension schemes that are largely defined contribution in nature.

The National Pension System (NPS) is gradually gaining popularity and provides a platform for individuals to secure their future by creating a healthy retirement corpus through investments. "India score in the Melbourne Mercer Global Pension Index (MMGPI) 2019 rose to 45.8 from 44.6 last year. India's index value increased largely due to the improvement in all three sub-indices of adequacy, sustainability and integrity. Government schemes such as NSAP, PMJJBY, PMSBY, PMSYMJ, etc have been launched as part of a universal social security program aimed at benefiting the unorganised sector. There is still a large part of the informal sector workers without any funded means to supplement their lack of future income streams during retirement," Supratim Bandyopadhyay of PFRDA concluded.

Hence, the young cohort of the Indian population - Millennials, must realize the evolving scenario and appreciate the importance of saving early for a better post-retirement life.