V. Vaidyanathan, the MD and CEO of IDFC FIRST Bank, spoke on different aspects of retirement planning, from early planning and financial tools to emotions and challenges people face with rising life expectancy and the need for a larger corpus in an exclusive interview with Nidhi Sinha, editor, Outlook Money, and Suchetana Ray, editor, Outlook Business. He emphasised retirement planning early in life to ensure financial security and peace of mind.

Here is the excerpt of the interview.

Evolving Family Dynamics And Retirement Planning

Because of the shifts in technology and change in economic conditions, life can be uncertain for the next generation. We never know the financial and life issues the next generation may have to deal with. Also, culture may change over time. This can leave many individuals more financially and mentally vulnerable in their retirement years.

So how hard can it get?

When I consider the elderly individuals we encounter daily, including our own parents, you can see for yourselves. Compared to their prime years, now they feel lonely, and sometimes feel irrelevant: they often have such feelings. Then they have to think about aspects like health. Imagine, to add to this, if they have financial issues. To save early and to invest in retirement plans can help (reduce) stress and give security in old age.

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Approach To Retirement Planning

When considering retirement planning, it is crucial to factor in the uncertainties of inflation alongside the inevitabilities of death and taxes. Inflation significantly impacts the lifestyle one can maintain post-retirement, often requiring a larger corpus than anticipated. So, people have to start early, as inflation compounds over time. Additionally, the requirement of retirement planning is different for various income segments, as the implications differ for the upper-, middle-, and lower-income classes. Retirement planning may vary across all socioeconomic segments. I worry less for the upper-income segment. They have investments in equities, bonds, wealth managers and others. Hopefully they will be fine, though they too should be careful.

Strategy For Low- and Middle-Income Households

Raising awareness or providing education is not sufficient; concrete policy measures are necessary. Measures like social security contribution-based pension are coming up and awareness needs to go up. We should not be relying on future governments to fund pension schemes. Contributions need to start—with a small contribution from the individual and some from the government—from today’s budget. It will build a sustainable pool for the future. There are government schemes for this.

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If the lower-income segment lives by the day, the middle-class lives by the month. Their expenses keep increasing with income all their life, for children education, paying equated monthly instalments (EMIs), higher education, car, home and so on. It leaves little room for savings. The only good news I see is that the next generation of many middle-class people is better educated and are better off financially, so they can hopefully support their parents. But as I said earlier, the next-gen is themselves dependent on the beats of a volatile workplace. Life can be difficult without planning, with mounting expenses.

Read the full interview here.