Retirement Planning ,Starting early is not a choice,
it is a must
By Mr. Jose John, Max Life Insurance
India is often
called a young country. As per the current predictions India’s youth population
(15-29 years) is going to cross 45 crore by 2021.
Thus by 2020 India is all set to become the
world’s youngest country with 64 per cent of its population in the working age
group* (15-64 years), which is expected to be among the highest as compared to
any other country in the world.
While the facts stated above are
quite encouraging for a developing country and a growing economy, there is also
a flipside to these facts.
In a few decades from now, India will have one of
the largest elderly populations.
The United Nations (UNs) Population Division
estimates that the number of people aged 60 and above in India is estimated to
grow from 8% of the population in the year 2010, to 19% in the
year 2050 - which translates to 32.3 crore people who are aged and out of job
and hence potentially income-less and exposed to financial exigencies.
While
the above facts are disconcerting, what is shocking to know is the level of
preparedness of Indians for their retirement years.
According to a Max Life and
Nielsen study, despite 60% Indians not having any retirement plan, 63% feel that they will have sufficient money during their retired years.
It is difficult to make out where that misplaced confidence comes from when
over 40% Indians are oblivious of the amount of money they would
require for their retirement needs.
All these should be seen in the
context of a country where social security is grossly inadequate and where
joint family system has given way to nuclear families.
Further, health costs are rising
where hospitalisation expenses have increased by 176% between 2004 and
2014.
Hence, it is imperative for
people to make their own arrangements to take care of their retirement needs.
One of the options is to invest in a pension plan to save for retirement.
Pension plans also sometimes
known as retirement plans are investment plans that let you
allocate a part of your savings to create a corpus over a period of time.
People
are often complacent and wait for too long before investing in retirement
products. As a rule of thumb, it is always advisable to start planning early.
People are often
complacent and wait for too long before investing in retirement products. As a
rule of thumb, it is always advisable to start planning early.
The earlier one starts saving for
retirement the easier it will be as the monies get invested over longer period
of time, thus reaping the benefit of compounding.
More specifically, some of the
key factors to be considered in deciding the required retirement corpus are the
person’s current age, retirement age and the estimate amount of money which
would be required every month, post retirement.
The effect of inflation on
purchasing power needs to be factored in as well.
Pension plans generally require
locking in funds for a longer period which means the flexibility of withdrawal
of money will be minimal.
This inflexibility will ensure that the proceeds from
the retirement plan is available only at the time of retirement and not used
for other life needs that may fall before retirement.
At retirement, generally the
proceeds from the retirement plan are used to buy an annuity which provides a
regular income stream to the individual and spouse in his / her retirement years.
So, old age does not need to be a
time of frugality or dependence but with prudent planning, can well be a time
of happiness and financial independence.
* State of
the Urban Youth, India 2012: Employment, Livelihoods, Skills,’ a report
published by IRIS Knowledge Foundation in collaboration with UN-HABITAT
Mr. Jose John is Director &
Appointed Actuary at Max Life Insurance
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