Rising costs, longer lives and changing work patterns are squeezing retirement savings in India. Many households face tighter budgets and uncertain employer support, making retirement planning more urgent. This piece explains the structural drivers and offers clear actions for policymakers, employers and individuals.
This article breaks down the structural reasons behind this squeeze, what it means for future retirees, and practical steps at the policy, employer and individual level to course-correct.
What’s driving the squeeze?
– Higher healthcare costs and longer lifespans mean retirement needs have grown.
– Education, housing and urban living expenses have risen, shifting spending toward the present.
– The shift from defined-benefit to defined-contribution work arrangements places more risk on individuals.
– Lower real returns on safe assets and volatile markets reduce predictable growth.
– Nuclear families and migration weaken traditional family-based old-age support.
– Rising consumption aspirations push discretionary spending ahead of long-term saving.
The result: a “perfect storm” where the need to save more collides with higher immediate expenses and greater longevity risk.
Why traditional approaches may not be enough
Conventional rule says save 10–15% of salary, rely on employer provident funds, expect family support and these all seem to be under pressure in the new world order. The combination of higher costs and lower certainty of employer-sponsored retirement benefits means many workers are likely to fall short of the corpus needed for a comfortable retirement.
At the policy and institutional level
– Strengthen social safety nets: Expand and deepen pension coverage in the informal sector through scalable, low-cost instruments with easy enrolment and portability (build on schemes like Atal Pension Yojana and NPS).
– Promote auto-enrolment and contribution escalation: Make automatic enrolment into retirement schemes standard for formal employment, with a default escalation mechanism to increase savings as wages rise.
– Offer tax-smart incentives: Rebalance tax incentives to reward early and sustained retirement savings across income groups, including contributions to NPS and other long-term vehicles.
– Make healthcare affordable and portable: Improve insurance penetration and reduce out-of-pocket expenses through subsidised, portable health insurance for retirees and working-age adults.
– Support financial literacy: Back large-scale campaigns to teach budgeting, compound interest, risk-return, and retirement planning in schools, workplaces and community centres.
What employers can do
– Offer default retirement plans with automatic payroll deductions and matching.
– Provide phased or part-time retirement options to ease income transitions.
– Run financial wellness programs and simple planning tools to boost participation and outcomes.
What individuals should do now
1. Treat retirement saving as a current expense. Automate contributions using SIPs or payroll deductions.
2. Set a target: estimate needed retirement income, then compute required corpus using a conservative withdrawal rate.
3. Build a short-term buffer: emergency fund (3–9 months) and solid health insurance to avoid dipping into retirement savings.
4. Reduce high-cost debt quickly to free cash for long-term saving.
5. Match asset allocation to life stage:
20s–40s: higher equity exposure for growth.
40s–55s: gradually reduce equity, lock gains.
5–10 years to retirement: focus on preservation and income.
6. Use tax-efficient vehicles (EPF, PPF, NPS, ELSS) as appropriate.
7. Increase contributions with income rises and rebalance annually.
8. Plan for longevity: consider a mix of lump-sum and annuity options at retirement.
9. Protect dependents with term life insurance and top-up health cover for older-age needs.
10. Factor caregiving costs into planning to avoid draining retirement funds.
Step-by-step action plan
– Step 1: Take stock of the current situation. Calculate the retirement shortfall; set a monthly contribution goal.
– Step 2: Build or top up emergency savings; secure health insurance.
– Step 3: Automate retirement contributions; set yearly escalation.
– Step 4: Review and rebalance investments; consult an adviser if needed.
Rising costs and structural labour changes mean retirement planning can no longer be deferred. The solution combines better public policy, employer nudges and disciplined individual habits: start early, automate saving, protect against shocks, and demand systems that make long-term saving easy and affordable. Small steady steps today can avoid big shortfalls tomorrow.
Also read:
Smart strategies to fill gaps in your retirement corpus
6 Stages of retirement planning
