Business Standard

Save diligently to counter the impact of career breaks

Establish emergency fund to avoid touching the retirement portfolio


On this Internatio­nal Women’s Day, let us first delve into why women’s retirement planning must differ from men’s. We will then examine strategies that can help you achieve this vital financial milestone.

Key challenges

Women have a longer life span than men. Data indicates the average life expectancy at birth for both genders is 72 years in India. It is 73.6 years for women and 70.5 years for men. Thus, women, on average, can expect to live for three years longer. “For working women from well-to-do background­s, the life expectancy is likely to be even higher,” says Renu Maheshwari, Sebi-registered investment advisor, co-founder and principal advisor, Finscholar­z Wealth Managers. Thus, women need to save more to cater to a longer lifespan.

Women, however, tend to experience disruption­s in their careers. In their late 20s or early 30s, they might need to take a break or two to have children and raise them. This hampers their career prospects, earnings, and saving potential.

Even when they return to work, they find it difficult to devote time beyond the regular office hours due to their familial responsibi­lities. This hurts their prospects in competitiv­e environmen­ts.

Inherited wealth is the most significan­t source of wealth creation globally. “When someone inherits assets from parents in their mid-20s or 30s, it elevates them to a higher financial status. But in many parts of the country, women face unequal inheritanc­e rights,” says Maheshwari.

Start early

Women must begin to save from the day they start working to reap the benefit of compoundin­g. “Imagine you are aiming for a ~10 crore corpus by age 60. Let us assume a 12 per cent annual rate of return. If you start at 25, you would require a monthly investment of ~15,000. If you delay the start to age 30, the monthly contributi­on increases to ~28,000. And if you wait until 40, the saving required skyrockets to ~1 lakh per month,” says Rajesh Minocha, certified financial planner and founder, Financial Radiance. Sonam Srivastava, founder and chief executive officer, Wright Research, suggests women should endeavour to save at least 15-20 per cent of their income for retirement.

Prepare for career breaks

Save money for career breaks. Being financiall­y prepared will enable you to choose a better and more significan­t role on return. If you are financiall­y desperate, you may settle for the first available option, which will affect your future earning and saving potential.

Setting up the retirement portfolio

For this long-term objective, investing in equities is a must, as they alone have the ability to outpace inflation. Being overly risk-averse can hurt you.

“If you earn, say, a 12 per cent return from equities, your money will double in six years. If you invest in a fixed deposit that gives a post-tax return of, say, 5 per cent, your money will double in approximat­ely 14 years. Over a 35-year career span, the difference in final corpus will be massive,” says Maheshwari.

Build an asset-allocated portfolio with a healthy mix of equity, debt, and gold using mutual funds.

“To decide your equity allocation, use the 100 minus age thumb rule as a starting point, then modify it further by taking into account your life stage and risk tolerance,” says Srivastava.

Rebalance the portfolio once annually. Srivastava also suggests taking advantage of employersp­onsored retirement plans (like

Employees Provident Fund) where the employer makes a matching contributi­on.

Having your own health insurance cover is vital so that a large expenditur­e caused by a critical ailment does not derail your retirement saving journey.

Maintain an emergency corpus equivalent to 6-12 months of expenses to avoid touching your retirement corpus in case of a sudden need.

Mistakes to avoid

If you leave investing for retirement until too late, it could prove to be a critical mistake. Overspendi­ng on children’s education and consumptio­n needs can also hurt. Relying on gold alone to achieve retirement security is another fatal error.

Finally, take charge of your personal finances.

Delegating the responsibi­lity of investing to male counterpar­ts, like a father or a husband, often proves costly in case of death or divorce.

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