Worrying about retirement in your early 30s may seem preemptive, but it is crucial. Arguably, this generation is among the most hardworking in the current workforce, seeing exponential financial growth through frequent job switches, promotions, and increments. Despite this, the answer is often negative or non-conclusive when asked about retirement savings.
This peculiar phenomenon indicates a grim financial reality. The root of the problem isn’t just a lack of financial discipline but a combination of rapid economic changes and upgraded lifestyle habits.
Difficult for Millennials to Save for Retirement
The Reality
Rising Healthcare and Housing Costs
According to data from the National Housing Bank, residential property prices in India have risen by an average of 10-12% per annum, far outpacing income growth and market inflation.
It’s no surprise that one of the biggest hurdles Indian millennials face is the overwhelming rise in living costs. While salary hikes due to job switches or promotions are common, they don’t always keep pace with inflation, leaving little room to accumulate savings.
In such a situation, owning a home - historically the safest cushion for retirement planning - becomes a much-delayed and tedious process. Moreover, the high costs associated with homeownership can significantly impede saving for retirement.
As for healthcare, in the last 10 years alone, we have faced major health crises such as COVID-19, the Zika outbreak, repeated Ebola outbreaks, and more. These grim realities have made millennials more health-conscious than previous generations. However, with healthcare costs consistently rising and health insurance premiums adding to the burden, saving money for such emergencies has become increasingly challenging.
Student Loans and Higher Education Costs
Higher education in India and abroad has become increasingly expensive. According to a survey by The All India Survey on Higher Education, tuition fees for engineering courses in private institutions have increased by over 50% in the last decade alone - making higher education seem like an additional financial burden.
Consequently, millennials pursuing master’s and professional degrees often rely on student loans, repayments of which can take several years. Retirement savings are pushed to the back seat as a significant chunk of earnings is diverted toward clearing these debts.
This also results in postponing investing in long-term assets or retirement funds, thereby obstructing potential years of compounding growth.
Lifestyle Inflation
As income rises, so do expectations of an upgraded living experience. Enter more expensive vacations, fancier gadgets, bigger cars, and more.
Additionally, seeing seemingly perfect, airbrushed lives of celebrities and friends on social media induces the ‘need’ to keep up. The desire for instant gratification can prevent many from considering long-term financial security.
Retirement? Too Far Off!
Most millennials view retirement as a distant event during their prime career years. Although financial literacy is improving, the importance of saving for early retirement has yet to sink in fully. As a result, there is often a delay in accumulating a Provident Fund (PF), investing in pension schemes, or exploring mutual funds for long-term growth.
Gig Economy & Job Instability
Many Indian millennials work in the gig economy, enjoying the flexibility of freelancing or short-term contracts. While this provides work-life balance, it limits access to formal retirement benefits like the Employees’ Provident Fund (EPF) or corporate pension plans.
Moreover, as switching jobs and enjoying subsequent hikes become more common, the ability to consistently contribute to a retirement fund decreases.
So, what CAN be done?
Considering the above realities, saving for retirement may seem like an insurmountable challenge!
However, where there is a will, there is a way!
Several steps can be taken to bolster and ensure retirement savings.
The Right Time to Start is NOW
One of the best ways to build a retirement fund is to start saving as soon as you realize its importance. Thanks to the power of compounding, even small, consistent contributions can grow significantly over time. Explore options like the National Pension System (NPS), Public Provident Fund (PPF), or mutual fund investments designed for long-term growth.
Auto-Debit From Your Salary to Your Savings
Setting up automatic deductions from your salary into savings or investment accounts is an excellent way to ensure that saving becomes a habit. This “out of sight, out of mind” approach ensures that a portion of your income is saved before you can spend it.
Avoid the Effects of Lifestyle Inflation
It’s easy to justify upgrades as you earn more, but keeping your lifestyle costs in check while increasing your savings can dramatically improve your financial health. The simplest way to do this is to ensure that your income and savings rise congruently and equally.
Reduce the Burden of Debt
If you have accumulated debt, focus on clearing high-interest loans first, besides allocating some money toward retirement savings. Once your debts are under control, you’ll have more flexibility to invest in your future.
Conclusion
Millennials face unique financial challenges, from skyrocketing housing and healthcare costs to the burden of student loans and the allure of lifestyle inflation. While these obstacles may seem overwhelming, the key to overcoming them lies in proactive financial planning and mindful spending habits.
Starting early, automating savings, and resisting lifestyle inflation is essential to building a secure retirement fund. It’s important to remember that retirement, while seemingly distant, requires preparation today. Taking control of your finances now can pave the way for a comfortable and financially stable future.
Retirement isn’t just about age - it’s about securing your freedom to live the life you envision. So, the best time to begin saving is today. The sooner you start, the more time your money has to grow, ensuring peace of mind and a worry-free retirement down the road.
FAQs
Why do people delay saving for retirement?
Many prioritize immediate financial needs like housing, debt, and day-to-day expenses over long-term goals, believing they have time to save later, which can lead to delays.
How does financial literacy affect retirement savings?
What role do rising living costs play?
Is debt a major barrier to saving for retirement?
What is the impact of not having formal pension schemes in India?