Excellent Child Investment Plan of Sukanya Samriddhi Account

My parents-in-law, now in their late eighties, have enjoyed a long and happy retirement. As their physical health has declined, however, I have had to take over the day-to-day management of their personal finances. As is typical for many of his generation, my father-in-law always handled the money. I have a lot of respect for his ability to manage his finances to this point, so I felt slightly uneasy reviewing his bank accounts, paperwork and spending. I was surprised to find that he had quite a large amount sitting in his bank account, earning no interest. After moving these funds to an interest-paying account, I reviewed their income and expenditure.

The reason their current account balances were so high was because their day-to-day spending had been running well below their modest income. Looking back on historic bank statements, I could see this had been the case for many years. My parents-in-law’s experience illustrates what retirement researchers have found: that we actually spend less as we age, not more. A few years ago, analysis of official data by the International Longevity Centre found that a household headed by someone aged 80 or over spends, on average, 43 per cent less than a household headed by a 50-year-old. They found that, like my parents-in-law, many older households continue saving throughout retirement.

This average masks the fact that a significant minority of older people struggle financially. Nonetheless absolute pensioner poverty has fallen significantly over the past 20 years as improvements to state pensions have been made. While higher income retirees tend to save more and earlier than lower income retired households, the data suggests that the majority of people save progressively more as they move through retirement. You might think that the costs of long-term care would undermine this theory, but apparently not.

Analysis of the data shows that only about 6.5 per cent of households led by someone aged 80-plus are putting money towards care fees, suggesting that such expenditure is atypical. This got me thinking about the implications for younger people facing competing demands on their present income to fund housing, university fee repayments and other short-term needs. Contrary to the perception that the younger generation will never be able to save enough to fund a decent retirement, my analysis suggests that they can.

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