As the number of individuals entering the 55-plus age group continues to rise, and with the increasing prevalence of nuclear families, there is a growing awareness among Indians about the importance of achieving financial self-sufficiency during their retirement years, reducing their dependence on their children.
The 2023 India Retirement Index Study (IRIS), conducted by Max Life Insurance Company in partnership with KANTAR and involving 2,093 respondents across 28 cities, reveals that the increasing preparedness for retirement is closely tied to the growing awareness of health and well-being. Notably, seven out of ten respondents associate retirement with a stress-free life, having more quality time for family, and the opportunity for luxury travel and leisure.
It’s no surprise that financial services firms are seeing increased revenue from seniors. In the past financial year, revenue from the 55/60-year-plus community showed robust growth, increasing by approximately 17%.
There is also a growing demand for annuity products. Srinivas Balasubramanian, Head of Products at ICICI Prudential Life Insurance Company, reports that their annuity segment witnessed a substantial 69% growth, rising from Rs 3.00 billion for FY2022 to Rs 5.07 billion for FY2023.
Notably, top financial services providers such as IndusInd Bank and DBS Bank are responding to this trend by offering an additional 0.5 percent interest rate on Fixed Deposits and Recurring Deposits. They are also providing personalized doorstep banking services to support their elderly customers through personal discussions and feedback sessions.
However, the IRIS report also highlights that one in three urban Indians is concerned about their savings depleting within five years of retirement. To mitigate financial challenges, experts emphasize the importance of early retirement planning. Guidance for individuals in their 20s and 30s who are in the accumulation phase to secure their retirement:
- Calculate the amount you should have saved by the time you retire.
- Estimate the monthly or annual investments required to reach that goal.
- Prioritize equity as your primary asset to combat inflation, with mutual funds as a safe and accessible equity investment tool.
- Maximize tax benefits by investing annually in the National Pension System.
- Avoid withdrawing money from your Employees Provident Fund. If self-employed, consider depositing in the Public Provident Fund (PPF) scheme.
- Do not rely solely on annuity products, as they typically offer low returns.
- Avoid making rental income your primary source of retirement fund accumulation, as it typically falls in the range of 2.5% to 3%.
Nonetheless, a significant number of individuals have not initiated their retirement planning early.Few recommendations for those aged 50 and above to prepare for retirement:
- Examine their net worth.
- Re-assess their risk tolerance.
- Identify and reallocate “dead capital.”
- Invest in suitable mutual funds to generate monthly cash flow through a Systematic Withdrawal Plan (SWP).
Additionally, there are government schemes designed to provide senior citizens with easy investment options, such as:
- Senior Citizen Savings Scheme with a maximum investment limit of Rs 30 lakh.
- Post Office Monthly Income Scheme with a maximum investment limit of Rs 9 lakh.
- Mahila Samman Savings Certificate (exclusively for women) with a maximum investment limit of Rs 2 lakh.
- Pradhan Mantri Vaya Vandana Yojana with a maximum investment limit of Rs 15 lakh.
Key Insights into the ‘3-Bucket Strategy’ for Achieving Early Retirement
Selecting the right investments for retirement plays a pivotal role in determining the quality of a senior’s life and their financial freedom. Therefore, it is essential to plan wisely for your retirement to ensure a comfortable and secure future.
