Contemporary Issues Indians Face With Retirement

Retirement planning will always be one of the most challenging goals one plans for. This is no different in India. Indians today face a number of challenges when planning for retirement. A study from February 2025 titled 'How India Thinks About Retirement' highlights these challenges. It highlights trends observed in responses from 1500 retirees and pre retirees all over India. And today I am going to talk about each of these challenges in detail. I will show why these challenges crop up. I will then show how they can be dealt with.

Gap Between Awareness And Action

The study shows that 60% of respondents were aware of the importance of retirement planning. And yet they ended up with considerably less for retirement than required. 42% of respondents believed that the period between age 31 to 40 is the ideal time to begin planning for retirement. And yet only 17% of respondents gave themselves 20 years or more to plan for retirement. 45% of respondents regretted not having begun planning for retirement earlier than they did.

This points to a clear gap between awareness and action when it comes to retirement planning. This means most Indians delay retirement planning even while being aware of its importance. This is because most people do not take retirement seriously when they are young. And those who are relatively more serious about retirement planning do not think about it holistically.

Most individuals tend to use extremely low estimates for corpus requirements post retirement. The ideal size of a retirement corpus can be given by the formula below :

Required retirement corpus = Current annual expenses * years in retirement

This is based on the concept of zero real returns. More about this concept can be found in my earlier article Zero Real Returns : Seemingly Zero Logic, Definitely Very Real. A few more aspects that individuals need to consider to build a holistic retirement plan are laid out below.

The Retirement Cliff

The study shows that 68% of retirees run out of money inside 15 years after retirement. Just 21% of respondents had enough to last for between 15 and 20 years. An even lower 11% of respondents had enough to last them for more than 20 years. This effectively means that someone retiring at age 60 is likely to run out of money by age 75.

The normal retirement age in India today is also tending lower from 60 to 55, even 50. This means retirees may likely run out of money by age 65 or 70. This means that retirement savings are likely to figuratively fall off a cliff very early into retirement. This is an extremely dangerous scenario for retirees. There are two major reasons for this.

The first of them is using extremely low estimates for life expectancy post retirement. Post retirement life expectancies of 75 to 80 years are often believed to be sufficient. But the data shows that those in their mid 30s or older at present should plan for life expectancies of 90 to 95. Those in their mid 20s and early 30s at present can even plan for a life expectancy of 100. This means our retirement corpus must last us for 35 to 40 years post retirement.

Most retirees also tend to assume linearity of inflation and portfolio returns post retirement. In other words they assume that inflation and portfolios would grow at a uniform rate post retirement. This is owing to reliance on thumb rules like the 4% rule. Adhering to the 4% rule would see our corpus last for 25 to 30 years post retirement.

But as shown earlier, retirement savings need to last for longer in today's times. Such thumb rules also imply that we withdraw a fixed percentage of our portfolios, after adjusting for inflation during each year of retirement. But in reality, our spending post retirement may follow a phased pattern. During the first phase of our retirement (say until age 65), we may spend more from our corpus. This is usually due to discretionary expenses such as travel.

During the middle phase of retirement (say between age 65 and 75) we may slow down physically. Therefore we may tend to spend less from our corpus. During the late phase of retirement (say age 75 onwards), cognitive and lifestyle issues are likely to kick in. This would lead to an increase in spending owing to healthcare expenses. We are therefore likely to withdraw more from our corpus during this phase. This means that our spending patterns throughout retirement are likely to resemble a smile shaped curve. This is borne out by the concept of the Retirement Spending Smile.

Forecasting retirement spending on the basis of thumb rules is therefore dangerous. We would be better served in defining spending limits for each year post retirement. This would optimise the longevity of our corpus. It would also facilitate greater flexibility in retirement spending. More on this in an earlier article Retirement Investing - II : Managing Withdrawals Post Retirement.

Loneliness, Social Isolation And Mental Health

The study shows that 21% of retirees and 18% of pre retirees fear loneliness and social isolation post retirement. These numbers may seem relatively low. But there is a specific reason why I am still bringing it up. The majority of the current generation of retirees have lived their lives under different societal conditions. Most of them have a strong family structure and/or social circle to support them. And yet there is fear of loneliness among them.

Young Indians today are a lot more independent and self reliant. But this also means that they invest in fewer meaningful relationships. This may also make their social circle a lot smaller. The next generation of retirees is therefore a lot more likely to fall prey to loneliness and social isolation. Mental health issues such as depression post retirement are also a very real challenge.

This happens mostly because retirees don't have a plan for their time post retirement. Most retirees step into retirement without a sustainable routine for their post retirement lives. This would see them feeling disillusioned or unfulfilled post retirement. Compromised mental health is simply a natural consequence of this. A few tips to mitigate the risk of depression and other mental health issues post retirement are laid out below.

Final Thoughts

The approach to retirement planning in India currently lacks practicality and foresight. It also usually ignores non financial aspects of retirement planning. It is therefore important for those retiring or close to retiring today to take heed of the issues discussed above. Some of them are also relevant to those accumulating for retirement today. Guarding against these challenges would therefore help both the current and next generation of retirees. It would help make post retirement life more fulfilling and mitigate uncertainty for retirees.