Why have we not seen a retirement crisis in India?

Published: August 2, 2017 at 9:59 am

Last Updated on

In this post, I discuss reader Abhay Deol’s question: As anyone who has played with a retirement calculator knows, the corpus required for the retirement portfolio is huge. And from all accounts, most Indians are not prepared for it or even realize the huge amount required. What I’m curious about though is why hasn’t this crisis played out yet? Where are today’s retired professionals getting their monthly income from?

The short answer is: the crisis is very alive, well and thriving and this has been the case for decades before Indians first started using a retirement calculator. This will be the case for decades to come and is likely to continue among the allegedly financially literate Indian (so called just because they choose equity).

There is not a shadow of a doubt that many of today’s normal retirees (regardless of whether they had a job or career) have trouble meeting ends. Even if they can manage today, it is likely that their future is bleak. That is if we consider only their income.

The main reasons the crisis is not visible (IMO, of course, and I do not have numbers to justify. Subra can write about this much better than me) in India are the following.

1 Lack of economic sense

Until now,  governments out of fear of losing votes have abandoned economic sense and refused to link fixed income rates to market yields. It recently came up with a formula to do so but does not use it as often as they should.

Thanks to a turbulent 90s when we were forced to pawn our gold to IMF and made the Rupee exchange rate market-linked, fixed income interest rates shot up and they remained high for nearly 15+ years. This allowed those in the late 50s or early 60s to lock-in to good annuity deals. Most of them would be in the mid 70s/80s or perhaps passed on.

The high rates helped senior citizens to “manage” (we will discuss what this means below)

2 Human fungibility in general and in particular, Indian fungibility

In India, most parents tend to stay with their children or near them.  This mixes up their cash flow with that of the children. To this day, my mother pensions (one hers and one a family pension) is pooled together with my income and used for expenses and investments. I have never bothered to check for which expenses her pension is used.

She retired in 2002 and since then, her pension has increased year on year at about 13%-ish. This is an astounding increase. No product on Earth can offer this.

The government realised this rather later and introduced the NPS. Only a few NPS retirees exist today and it will take years before we know how they manage(d).

While speaking at the RBI staff college last month, I was shocked to learn that the government cancelled post-retirement DAs for the RBI staff under GPF. This means they will only get a constant pension = 50% of last drawn pay. Whether this leads to a crisis or not, we may never know.

At least I can run the numbers for my mother. She is 70, a Parkinson’s patient (for the last 10Y), requiring medication and assistance. Accounting for her meds + a day assistant, she would be left with about 12K a month to buy food, pay flat maintenance, EB bills, and other expenses. Is that enough in a city like Chennai for a single person? Becuase she lives with us, her expenses are part of our expenses. That is, we do not stop to divide and check.

Has the retirement crisis played out in her case? A resounding yes.  Is it visible/impactful? No.

Not because she is staying with us, but because we (me, my wife) can just about meet expenses (needs and wants) and still manage to invest some.

The point is, staying with a child alone is not enough! The child should be able to afford that. What if the son or daughter does not earn much? What if their income is not much higher than the pension received? Or worse, what if there is no pension at all?

If that happens, I can assure you there will be friction in the family, no matter how “cultured” or educated the children/parents are. I personally know examples of this “friction” and all that it entails and I can bet that you are aware too. I do not have numbers or statistics to back my opinion here, but I think you will not disagree with me too much on this.

3 Lesser wants/needs + Adjustment & management

I hope you will also not disagree too much if I claim that our grandparents had lower wants/needs than our parents and in turn our parents lower than ours.  There are plenty of reasons for this: better access to resources and technology is a key factor.

I was born in a huge mansion that housed a joint family and it had no electricity until I was born. My grandparents lived out almost their entire life without it. Their pensions were meagre, but so were their needs. This is one reason they could “manage” (as we often say). The other reason is the great human adaptability. We never stop evolving or adapting.

Human beings have this great ability to be flexible. They do so adeptly that it is hard to spot. Retirees adapt to circumstances at all times.  If their pension income or interest income decreases, they cut expenses. We never notice because unlike us, they are not a song and dance generation. They would rather quietly stop spending than asking their son or daughter for more money. And today the son or daughter has their own list of problems – an unstable job for instance – that they may not notice.

Retirees in the transition to a new India

Those who retired in the last 5 years or will retire in the near future are going to have a tough time as interest rates have dipped; the RBI has  new inflation target of 4% +/- 2% with the government having a 50% say in the rate; Small savings schemes are now market linked (at least in theory) and now with an increase in the stock market, more and more retirees are likely to fall prey to BS products/procedures like an SWP from an equity fund; monthly dividend income from “balanced” funds” and see a good chunk of their retirement savings eradicated by a market crash.

I can only say a prayer for them. Btw I am not talking about retirees who have enough corpus to generate an income that increases at least  6% a year for the rest of their lives. That would be a minority today and a minority tomorrow. The real India does not read crappy blog posts such as this. The real India has much bigger fish to fry.

Among the reasonably well off Indians, retirement homes are getting popular. However, in terms of expenses, they could be higher than staying at home. Also, the homes have not evolved yet and I am not sure how professional their services are.

Retirees in a new India

How about those that will retire 10Y, 15y from now or beyond? Would not most of them be “educated” enough to use equity? Would they not be able to retire comfortably on their own? I certainly hope so, but I will not put my money on it.

The real India does not represent truly long-term equity investors. Besides, the corpus of a good number of retirees will become market linked. EPF market component is steadily increasing and soon it may be a thing of the past. NPS is already the largest mutual fund in the country. So the corpus health will depend on luck and how well they can manage risk (this is one area where there is not enough expertise around).

Today people may be earning more, but they are also spending more. Their dependence on technology is absolute. There is no evidence of their ability to “adjust” and “manage”, but hopefully cometh the shortfall, cometh the cut corners.

However, an adjustment today is not the same as what it was 10Y ago or 20Y ago because there was so much less tech.

Why am I so pessimistic?

Yes, I can be annoying with my pessimism. The reason for that is two-fold:

Join our 1300+ Facebook Group on Portfolio Management! Losing sleep over the markt crash? Don't! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community

Most earners are unable to invest what is needed for retirement, primarily because they started thinking about it too late. Well, that is how young people are, but a few decades ago, with less spending options, this is not as a mistake as it is now.

Want a thumb rule? We must we able to invest for retirement at least as much as we spend (towards expenses that will persist beyond retirement). Use this calculator to check.

So, time and investment in the compounding formula have issues for many today. That leaves out returns – the least important element.

There are two kinds of people in this world: those who have seen hardships early in life and recognise one cannot take anything for granted and those who have lived a good part of their without serious hardship and tend to assume things will go as planned. I tend to think the latter group is more in number and many of them invest in equity with hope, and hope is not a strategy.

Your thoughts please.


Freefincal In Tamil!

Venkatesh Jambuligam has been translating some of my posts in Tamil. This week he has tackled upside/downside capture ratios. Please support his work.

Ask Questions with this form

And I will respond to them coming Monday. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you.  PLEASE DO NOT POST COMMENTS WITH THIS FORM it is for questions only.

[contact-form][contact-field label=’Name’ type=’name’ required=’1’/][contact-field label=’Email’ type=’email’ required=’1’/][contact-field label=’Comment’ type=’textarea’ required=’1’/][/contact-form]

GameChanger– Forget Startups, Join Corporate & Live The Rich Life You want

My second book, Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantco-authored with Pranav Surya is now available at Amazon as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no kindle necessary).

It is a book that tells you how to travel anywhere on a budget (eg. to Europe at 50% lower costs) and specific investment advice for young earners.

The ultimate guide to travel by Pranav Surya is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)

You can Be Rich Too with Goal-Based Investing 

My first book with PV Subramanyam helps you ask the risk questions about money, seek simple solutions and find your own personalised answers with nine online calculator modules.

The book is available at:

Amazon Hardcover Rs. 271. 32% OFF

Infibeam Now just Rs. 270  32% OFF. If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!

Flipkart Rs. 279. 30% off

Kindle at Amazon.in (Rs.271) Read with free app

Google PlayRs. 271 Read on your PC/Tablet/Mobile

Now in Hindi!

Order the Hindi version via this link



Do share if you found this useful
Join our 1300+ Facebook Group on Portfolio Management! Do not lose sleep over your bleeding portfolio: Learn how to reduce fear, doubt and uncertainty while investing for financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community

Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

About the Author

Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

About freefincal & its content policy

Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News
Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication.Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)

Connect with us on social media

Our Publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingThis book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel


This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when traveling, how traveling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download) 

Free Apps for your Android Phone

Comment Policy

Your thoughts are the driving force behind our work. We welcome criticism and differing opinions.Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.


  1. Very true..Problem is most of us realize there is an issue but refuse to act till its too late. I am now in my 40’s and till i reached my 35’s, i did not think savings was needed. Spent a lot on lots of aspiration goods like phone, car etc. Today, i realize the importance of savings and am trying to make an amends to my spending and investment patterns…..Thanks for sharing your wonderful thoughts thru freefincal and aasan ideas on FB.

  2. You are not Pessimistic Professor, You are Realistic and to some extent so am I. Like you said, some people are lucky enough to have only sunshine and rainbows in their lives but some have tasted bitter grapes and will look at things from a realistic perspective.

    With teachers like you, I believe if one can practice, their future will not be too bleak or out of control.

    Thank you.

  3. Great post. But that is only to be expected! I agree with your point about pessimism – I don’t think that you are a pessimist but a realist as Chaitanya above said. The best thing that happened (with hindsight) to my wife and me was to come upon some really difficult times when we came to London to study in the early 1980’s. Both of us were on low scholarships/internships and we had to budget for all expenses and found ourselves running out of money during the last few days of each month. My wife’s suggestion was to cut out fruit and the occasional beer from our shopping list. I felt that was not right and the solution was to focus on earning a bit more. Getting out from those days of buying second hand things (including my suits for work) made us both frugal and the best thing was that both of us felt the same way about money and about not spending extravagantly.

  4. Great Post. Govt pensions now no longer indexed and linked to market + large workforce under private sector these will compound the problems. Most folks are not worried because they have a plan.
    “I will sell my apartment which i bought for 80lakhs for 2cr and go settle in my home town”.
    “I will make lot of money in equity because i am doing SIP and my fund advisor said so i checked in calculator”.
    “I will start saving as soon as my …. commitment is over and i will save more each month because i wont have that expense anymore”
    “I will get rent and my rent will keep increasing at 10% each year”
    The market crash if any will errod the savings of the folks about to retire or retired. It will put the fear of god in them and they along with all the people who lost money based on the SIP advertisement will stay away from the market for a very long time.
    Apartments will find no takers and supply demand will play out as per the book.
    In all this chaos there will still be winners the ones who didnt follow the crowd, understood when to take risk and understanding the realistic returns vs fictional returns.

  5. Thanks for the post. As always, learnt a lot. The subject of this post has been on my mind for some time now. Thanks to Abhay Deol, you addressed it. From my experience, I see that the crisis is NOT evident right now (among retirees who would have reitred 10-15 years back) because of the reasons you mentioned: adjustment of needs and support from children (where children are able to). However the real crisis may start to become evident from my my generation onwards (those in the 40s right now). You talked about two kinds of people – I have seen a significant number of a third kind of people (at least in my generation): people who experienced hard life until early stages of their career and then experienced good life and take the good life for granted. With regards to younger generations, I don’t quite understand them yet – from what I see their financial habits are generally not healthy but then they may change in their 30s after few hard experiences (I started on improvement path only in my mid-30s).

    In any case, in various cultures, I have seen that only a minority will ever be disciplined enough.

  6. Recently, MoneyLife people did a detailed study on retirement homes, the ones in Coimbatore & Pune. If you are interested, I can mail you my copy of the magazine or cut the article alone and mail it.

    1. Thank you, but I have an allergy to money life style of reporting. NOw that you have mentioned it, readers can search for it in their site.

  7. Very interesting topic! I am 45 and have been reading your blog and also subramoney regularly for years. Thanks to both of you, I have been putting aside good percentage for retirement. Initially my wife would also make fun of me when I talked about retirement as she thought it was too early. So I started involving her while reading Subramoney and have shown some numbers from your retirement calculator.
    When I try/tried to discuss this topic of retirement with friends, some colleagues or relatives they look at me strangely or bored. So you being pessimistic is not unjustified. We are staring at a massive problem. With most of the current generation’s spending habits, expecting them to take care of their parents is a bit unrealistic. Most of them are oblivious to the fact that life expectancy has increased rapidly and our dependency on medical support too has gone up.
    As a matter of fact my parents are in 70s with no pension or dependable income & live with me. By God’s grace things are going smoothly. But I cannot be complacent because things are changing.

  8. Hi…Anand sir…i was not able to find the article….can you post it here for the benefit of others also…thanks

  9. Very interesting post Pattu. This is something I used to wonder so much over the past few years. Because, I got introduced to personal finance and planning through the internet in my late twenties, but growing up, I had not seen any of the elders in the family or their friends ever bother about their retirement income/cash flow etc.
    Your analysis is very similar to what I had deduced. The impact is definitely there but not visible.

    BTW, @Saurabh: I think this is the article :


  10. Certainly we are staring at a huge retirement crisis ready to explode in the years to come. Reasons it’s going to become more visible now include collapse of joint families, dip in astoundingly high existing interest rates, rise of consumerism, increasing life-expectancy etc.

  11. Sir, Few points you left on how currently many mange their retirement are even if those does not have pension, its very common the people in the past own house and in that house they would have built 2,3 portions and let it out for rent.. this is very common among people who struggled whole life to buy a plot and construct a house other than making their kids study, even they in additon to the house they live they have 2,3 portions to rent and with those rent they manage their day to day lives after retirement.. So if some one gets pension and still have 2,3 portions as rent its bonus.. and whether taxes have been paid for those.. only god knows and cannot comment..

  12. Pattu Anna, Excellent post. No one can deny that in New India this is going to be a major issue. We are taking only examples of monthly salary class. What is happening to others. This is where our culture and joint family system had the solution. During my younger days my mother cook extra food for needed people. Never remember visited to hospital. Most of the time Grand mother or aunts prepare homely medicine.Lucky to be part of big joint family, but what happened we moved out of joint family system and selfishness brought to our current situation. No government can provide pension for its citizen. Only solution is going back to our original system. This is the sustainable solution. Today’s faster world who has time to think in big picture. Our parents had larger heart to govern big family and taking care of every one at best possible way by sacrificing their needs. They felt happiness in their scarification. I feel that was the main reason why retirement is not a big issue in our country earlier days. Also, earlier generation had enough mentality which today’s generation moving towards greediness and selfishness which will be challenge to overcome.

Leave a Reply

Your email address will not be published. Required fields are marked *