When we talk about middle-class Indians saving for retirement, it’s important to remember that this is an extremely diverse group with differing saving habits and investment preferences. However, according to a 2020 report by the World Bank, the average Indian middle-class household saves about 10-12% of their income.
These savings are typically distributed across several instruments:
- Employees’ Provident Fund (EPF): This is a government-run retirement benefit scheme and remains the most common savings avenue. Here, both the employee and employer contribute 12% of the employee’s basic salary and dearness allowance towards the fund.
- Public Provident Fund (PPF): Another popular, government-backed long-term investment option where contributions are tax-deductible, and the interest earned is tax-exempt.
- Mutual Funds and SIPs: These are increasingly gaining popularity as they provide the potential for higher returns. They do, however, come with a certain level of risk.
- Life Insurance: Many Indians also opt for life insurance policies, which serve the dual purpose of offering a death benefit as well as working as a long-term investment.
- Real Estate: Buying property is a common way for the Indian middle class to build wealth over time, with the goal of either selling the property in retirement or leaving it as an inheritance.
- Gold: Traditionally, gold has been a favourite investment among Indians due to its perceived safety and cultural significance.
- National Pension Scheme (NPS): This is a government-initiated pension and investment scheme, another popular tool for retirement savings.
- Fixed Deposits and Savings Accounts: These are considered low-risk investment options and are commonly used by middle-class Indians.
Despite this, there are a few challenges that middle-class Indians face when saving for retirement. These include a lack of financial literacy, making them susceptible to poor investment choices; the rising cost of living; and the absence of a strong social security system.
To overcome this one must learn about diversifying investments, starting to save early, regularly reviewing one’s investment portfolio, and seeking professional financial advice. All of thsi can go a long way in ensuring a comfortable retirement.
