Experts say depending entirely on children after retirement can be risky as families become smaller, living costs rise, and financial responsibilities increase
New Delhi: Retirement planning should ideally begin as soon as a person starts earning. Financial experts say that in today’s changing economic environment, relying on children for financial support during old age can be risky, making early savings and disciplined investment increasingly important.
India’s traditional joint-family system once provided many parents with financial and social support after retirement. However, the growing prevalence of nuclear families, migration for employment, home loans, EMIs, and rising education and healthcare costs have changed the financial dynamics of households.
Experts therefore recommend that young professionals begin building their retirement corpus from their first salary, rather than postponing retirement planning until their 40s or 50s.
Why Retirement Planning Should Begin Early
Mehak Tomar, founder of India’s Futures Investors, said India’s family structure has changed significantly over the years. Earlier, large joint families shared household resources, while many employees also had access to pension benefits.
Today, young professionals often move to different cities for work and have multiple financial commitments, including home loans, EMIs, children’s education and household expenses. For a single earning member, supporting both their own family and elderly parents can become increasingly difficult.
Ashok Manwani, Vice President (Products) at Digit Life Insurance, said retirement preparation should ideally begin when a person starts earning.
Starting investments between the ages of 20 and 30 provides the benefit of compounding, allowing relatively small investments to grow into a substantial retirement corpus over several decades.
What If Retirement Planning Starts Late?
Starting late does not necessarily mean retirement security is impossible. Experts recommend first conducting a comprehensive assessment of income, expenses, savings, investments and outstanding debt.
People in their 40s or 50s who have insufficient retirement savings should immediately reduce non-essential expenses and avoid taking on new high-interest debt.
They should also focus on increasing their savings rate and clearing expensive existing loans as quickly as possible. Depending on their financial requirements and risk profile, they may consider investment products designed to provide regular or guaranteed income, including annuity and pension products.
Some products combine guaranteed income features with market-linked components, potentially providing an opportunity for higher returns while also carrying investment-related risks.
Financial Protection Is Crucial for Single-Income Families
Financial preparedness becomes even more important when only one member of a household earns.
Experts recommend having adequate term life insurance so that the family can manage outstanding loans, regular living expenses and children’s higher education costs if the primary earning member dies prematurely.
Tomar also recommends considering life insurance under the Married Women’s Property Act (MWPA) where appropriate, as the legal framework can provide specific protection for policy proceeds for the benefit of the wife and children.
Families should not depend entirely on employer-provided health insurance. Experts recommend maintaining personal health insurance, along with suitable critical illness and disability coverage.
Both spouses should also be aware of the family’s bank accounts, investments, insurance policies and other financial assets. Keeping nominations updated and preparing a valid will can further reduce legal and financial complications for family members.
Inflation Must Be Included in Retirement Calculations
One of the biggest mistakes people make is calculating their retirement requirement based on today’s expenses.
Financial planners emphasize that retirement calculations should account for future inflation. A household spending ₹50,000 per month today could require substantially more to maintain a similar lifestyle two decades from now.
Healthcare costs are another major concern. With increasing life expectancy and rising medical expenses, retirees may need to fund their living expenses for 20 to 30 years after leaving the workforce.
Medical inflation can also significantly increase the financial burden of healthcare during retirement. A major illness without adequate insurance can potentially consume a substantial portion of a family’s savings.
How Much Retirement Corpus Is Enough?
Tomar suggests that individuals first determine the lifestyle they want after retirement and then estimate their future expenses.
One commonly used rule of thumb is to build a retirement corpus equivalent to approximately 25 times the inflation-adjusted annual expenses, although the appropriate amount varies depending on life expectancy, inflation, investment returns, healthcare requirements and other individual circumstances.
Experts also recommend maintaining a separate emergency and medical fund rather than depending entirely on the retirement corpus.
All outstanding loans and other liabilities that are expected to continue into retirement should also be included when calculating the required corpus.
Retirement Independence Is About More Than Wealth
Financial experts say financial dependence in old age is often the result of years of postponing retirement planning while prioritizing immediate responsibilities such as buying a home, funding children’s education or running a business.
Building assets is important, but retirement planning should also focus on creating a strategy for converting those assets into sustainable income throughout retirement.
Starting early, controlling debt, maintaining adequate insurance, investing consistently and accounting for inflation can significantly improve the chances of achieving a financially independent and dignified retirement without placing an excessive financial burden on children.
