Aegon Life Insurance has been conducting their Annual "Retirement Readiness" survey for five years now. The 2016 edition was released recently, and is available for download on their website.
Interestingly, it appears that 84 per cent of Indians surveyed have a retirement plan of some kind in place - significantly higher than the global average of 58 per cent. Of the 84 per cent who have a plan, 55 per cent have a non-written plan and 29 per cent have a written plan. As a Financial Planner who deals with clients in multiple cities both directly and indirectly on a daily basis, I find this statistic to be a bit hard to digest.
My personal observation has been quite different - I have found that most clients in their mid-thirties haven't even seriously started considering their retirement as yet. By their early forties, a larger cross section of clientele starts showing some form of concern about their impending retirement. Is it possible that the report inferences are skewed because a majority of the respondents are from larger cities? It doesn't say.
The only point I can offer with respect to this mystifying dichotomy is that a large percentage of the 55 per cent who responded saying that they have an unwritten plan are simply referring to their ad hoc savings that are being made into their PPF accounts, Fixed Deposits or traditional Life Insurance policies - all of which do not constitute very smart ways of saving for a long term goal such as retirement. To that effect, these numbers may not be completely representative of India's "retirement readiness" per se.
Having said that, it's extremely encouraging to see more and more Indians opting for a written retirement plan - this number has risen from a mere 18 per cent in 2014 to a high 29 per cent this year. However, the cumulative (written and unwritten) figure has been crawling at best (from 79 per cent to 82 per cent to 84 per cent year on year); so while the size of the pie isn't really expanding briskly, a larger segment of the number of individuals with wishy washy, unwritten plans now seem to be opting for a written, structured plan instead.
Having a written retirement plan helps really put the numbers - the effects of inflation and compounding - into perspective, and I've often seen this simple act alter risk tolerances and priorities altogether, forcing savings to be channelized into more aggressive, high growth assets such as long term equities or mutual funds.
The real challenge we Financial Planners face as a community is to help people understand what really constitutes a retirement plan - whether written or unwritten. Put simply, a valid retirement plan considers future expenditures, inflation, expected life span, expected age of retirement and current investments made, arriving finally at a tangible and implementable plan to achieve the corpus deficit, with an annual step up if need be.
The Aegon study points out that the "number of individuals with a written retirement plan doubles in the age bracket of 60". Regrettably, that is akin to bolting the door after the horse has fled - a retirement plan cannot be drafted at 60; what you have at that stage is just a cash flow plan, and it's best to not confuse the two.
Have you drafted your written retirement plan a yet? If not, you may want to prioritize this simple act. Make sure you work with a Financial Planner (preferably a CFP) to get this critical document in place. You don't want to be saddled with the wrong products at the end of the elaborate planning process.
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