Indian household finance differs much from that of their counterparts in other parts of the world, especially the developed countries. The findings of a study conducted by a household finance committee with members drawn from various prestigious institutions arrived at this conclusion. Interestingly, the study says the average Indian household only has 5% in financial assets, whereas 84% of their wealth is in real estate and physical goods and 11% in gold! This is not an ideal retirement scenario.
Retirement Planning in India
Most Indian households do not allocate funds for retirement planning. Rather, they do the opposite – Accumulate debt even as they approach retirement. While we are slightly better than some other Asian counterparts, we lack when compared to countries like Australia, where retirement allocation was 23%, and the UK at 25%. However, while 90% of the rich have financial assets, it reduces to 55% in the poorest households. The worst part is that the debt is unsecured and not formal- one-third of the rich and two-thirds among the poor.
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Even when it comes to insurance, the patterns vary across different states. While we have a substantial senior population, retirement planning covers only a minor percentage. Perhaps, a lot of it is to do with our demographics, a low rate of urbanisation, as compared to developed countries, the concept of joint families, etc. However, it is essential to plan for retirement and optimise our finances since our lifespans are increasing, whereas the healthiness quotient is reducing. And the pandemic has only made things worse. So, what can seniors do to optimize their finances?
Ensure a Monthly Budget
Every household should also have a budget and track it closely. Unless you monitor the expenses, you will not realise some patterns of concern. It could be eating out, ordering in, monthly healthcare expenses, etc. The budget must consider expenditure, investment, insurance, and saving. Household budgeting can be individualistic, and one cannot necessarily follow a rule to standardise it. However, one can apply the generic 50:30:20 ratio rule to be in control.
This thumb rule means 50% of the income should go towards household needs (the must-have), 30% toward wants (the good to have), and the remaining 20% must go into savings. In the three elements, what you can move towards needs or savings is the wants component, which is up to you. The wants component can also double up for emergencies. You could also check out some money-saving hacks to reduce spending on needs. Gen Z strictly follows this monthly budget planning, and incredibly, 54% of them have some form of investment. This scenario is in stark contrast to the previous generations, who rarely planned for their retirement.
The Savings Portfolio
A regular monthly income to cover needs is a must during retirement years. If you have retired with a corpus, you could consider some government schemes to ensure a regular monthly income. You can also explore the reverse mortgage option. If not, take stock of your finances and plan for a monthly income through investments. Today, apps like Zerodha, Upstox, ICIC Direct, Groww, etc., make investing in stocks and equities easier. Many of these platforms offer free tutorials that enable individuals to open their investment portfolios.
Some platforms provide regular market insights and paid services to help you make informed decisions. However, it’s good to comprehend what suits you. Is it stocks, equities, mutual funds, or SIPs? Each of these has specific benefits and you need to understand, explore and decide on your investment path. You could also choose to distribute your investment across FDs and these options. These are easy to track, and the gains can help meet unexpected expenses. One can start small and slowly build a robust portfolio.
Planning Long Term
Crossing sixty years does not mean you should not plan for long-term needs. Considering increased lifespans, one should save and invest for the long term. Let the investment handle the long-term wants and emergencies. Ensure adequate medical insurance to cover emergency medical needs, especially hospitalization. It is good to consider OPD insurance or health cards, considering that not all issues among seniors will need hospitalization covered by insurance. In developed countries, people reduce their physical assets as they age, and it is not a bad idea. The senior retirement communities in India are slowly and steadily growing, and this is an option worth considering depending on your circumstances. With a little effort, seniors can explore, understand and optimise their finances across household expenses and savings and invest wisely to ensure they can lead a dignified life.
