TomorrowMakers

Retirement planning for women!

building retirement plans

The 2017 Global Financial Literacy Excellence Center Study showed the gender gap in financial literacy, with only 20% of women understanding financial concepts. This means that women lack their male counterparts in financial knowledge.

Also, retirement planning is more necessary for women because of the following factors:-

  1. Higher life expectancy- Women tend to live longer than men. Therefore, their retirement plans should be bigger than men's. 
  2. Less working years- Women take breaks in their careers to care for children and maintain work-life balance. They also tend to settle for lower salaries to maintain a work-life balance. 
  3. Depend on their spouse- Many women in India and other countries depend on their spouses for their financial needs. But, they may be divorced or lose their husband in unforeseen circumstances. In this case, they will need to make enough money to support their children and themselves.

Due to the above reasons, retirement planning is necessary for women and is more important than for men. But, on average, women tend to avoid retirement planning. Financial planning is a long-term habit; women should plan for their financial futures to secure their finances. If your finances are in order, you can focus on other things. 

Related: 4 phases of retirement planning 

Retirement planning for women

These are some tips for women to retire comfortably:-

  1. Start early and invest in equities when you are young- If you are young and you start early, you can invest in equity mutual funds for higher returns. In the long term, equities outperform other investment classes, and if you have age on your side, you can take a higher risk.
  2. Buy a term insurance plan- You should get term insurance to protect your family against untimely death. If you buy a term insurance plan in your 20s, you can get it much cheaper. 
  3. Get health insurance- In case of medical emergencies, your health will be taken care of if you have health insurance. Also, you can ensure that your health does not suffer because of your finances, and your retirement savings f do not suffer because of your health issues. 
  4. Understand that inflation will eat away your retirement corpus, so plan accordingly- Inflation can make your retirement plans go bad. Therefore, you need to understand that if you are getting returns at 8% on your retirement plans and inflation is 5%, then your net return is 3%, and you should plan accordingly. 
  5. Consider pulling out of equity when you are close to retirement- If your retirement is approaching, you should consider pulling out some funds from your retirement plans. This will ensure that you are not affected by the equity market downturns when you are close to retirement. 
  6. Avoid debt close to retirement- When you are close to retirement, you should completely avoid any debt. If you have any existing debt, you should clear it immediately.

There are some plans you can consider for retirement like:-

  1. PPF or EPF- You should invest your retirement savings in EPF or PPF. This increases your take-home pay while ensuring your retirement plans are not affected. For new women workers, the GOI requires a contribution of only 8% instead of 10 or 12% for the first three years. Here's how you can get Rs 1 Crore by investing in PPF wisely 
  2. Kisan Vikas Patra- The USP of the product is that it doubles your corpus in 9 years and five months. The annual interest offered is 7.6%.
  3. National Saving Certificate- This scheme offers 8% returns, but the only drawback is that you cannot withdraw it before maturity. 
  4. Mutual Funds- In your early years, you should consider equity as an asset class for higher returns. For example, SBI small cap fund (direct) has given over 25% annualised returns since inception. Build a Rs 25 Crore retirement fund with an SIP of Rs 36,110
  5. Post Office savings- You can save in post offices for higher fixed returns. 

Related: Tax benefits after retirement 

Retirement planning is essential for women. If you want financial independence, you should start saving early. Some retirement schemes you can make use of are PPF, EPF, National Saving Certificate, Kisan Vikas Patra, Post office schemes, etc. You should consider equity mutual funds for higher returns in the early working years. If you plan well, you can retire comfortably and secure your future. You can use this Retirement Calculator to find out how much you need to save for retirement.