More Indians are today aware of the importance of retirement planning, especially in the urban centres; however, competing priorities and certain false notions act as barriers for them to an early start for retirement planning, says Prashant Tripathy, CEO and managing director of Max Life Insurance in an exclusive interview with Outlook Money’s Versha Jain on the sidelines of the release of Max Life’s India Retirement Index Study (IRIS) 4.0 in New Delhi on Wednesday.

Here are the edited excerpts:

What are the biggest challenges people face in retirement planning?

The study shows that 93 per cent of people above 50 repent not having started savings early. So, the need is understood, albeit late, close to retirement. The barrier to starting early is people’s mindset. Competing priorities and lack of action lead to delays. “So, one is a tangible problem, and the other one is a behavioural problem. Those are two reasons that I will say could be deterrents because of which the awareness and ownership have such a big deal,” says Tripathy.

Considerations like taking care of kids, old parents, or buying a house, etc., take precedence, making it harder for them to allocate resources for retirement, especially for low-income households. “It is a false notion about family wealth or kids will look after (them), or some lethargy that I don't have access to a good advisor”, which stops them from starting, he says.

Many people also don’t have access to qualified individuals who could advise them.

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What can retirement solution providers do about it?

Awareness is the first step towards a solution. For example, says Tripathy, “If I'm 40 years old and I read that 93 per cent of people aged 50 and above wish that they would have started investing for retirement on time, will create pressure and awareness.

“The government is doing a lot, but the entire ecosystem of regulators, companies, people like yourself, government, everybody has to come together to drive awareness. There is always a delta. First, the awareness, then repeated awareness and reinforcement, and then action happens.”

Should one determine the retirement corpus before starting planning?

It is not a frozen number for anybody, but whatever one earns, one can multiply it by 10 for the protection number. “That’s the minimum target. If your salary is Rs 20 lakh, try to get protection for Rs 2 crore. Unfortunately, there is no formula. It depends on age. For example, if you are 30 and wish to retire at 60, the inflation accumulation will be pretty high compared to 55.

“Second, it is your life stage and what lifestyle will you maintain after you retire. Generally, people cut down on their lifestyle once they retire, not in terms of the house but the expenses.

“Third, everybody has competing needs. Young people have small children, so they focus on children, education, and marriage. People over 50 will have different needs and preferences. So there is no one formula, but there are calculators that will factor in your age, life stage, inflation, and needs and then eventually tell you what kind of savings you want. However, some solutions could be given, saying this is how you begin, how much you need to save, and when you will have enough money to care for your needs.”

So, it’s hard to say whether one should have Rs 2 crore or Rs 5 crore. It depends on when one retires. If retirement is after 20 years, Rs 2 crore will be nothing, but if one retires today, they may be able to manage their expenses with Rs 2 crore. So that's the challenge, adds Tripathy.

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Is the advisory or the consultation fee also a barrier for some people?

Advisors’ fee is the commission the company pays and not the customer. However, paying advisors is worth it, says Tripathy. “Who doesn’t charge? For example, mutual fund companies charge a fund management fee. Financial services come with a cost. Those costs are always worth it because they have a transformational impact. If somebody is helping you transform your life, is the expense towards the service worth it? If you don’t save your life and save that cost, you will keep repenting all your life and those costs are going down every year.”

Advisors recommend keeping insurance and investment separate. But your survey shows some two-third of people invested in life insurance for retirement. Is it the right choice?

The association between life insurance and retirement runs deep. Tripathy says life insurance offers two kinds of risk management: short and long-term life cover. Providing long-term life cover is the core job of life insurance companies. For example, Tripathy says, “If a person retires at 58 and the insurer offers to pay X annuity, say, Rs 1 crore, for X annuity every month as long as you live. That’s a risk against living longer. That’s a risk worth taking.

“No instrument takes care of a long life. Life insurance is in the core retirement business. There are also solutions around estate planning. Term plans can go until death so that a corpus is left for your family. So, people relate life insurance as a retirement solution.”