retirement planning: 4 reasons why retirement planning is critical for women. Here’s how to start

Financial planning, money management, and investments have traditionally been male-oriented. Even with women excelling in all fields of life and becoming increasingly independent, their financial planning takes a backseat.

This roots in a lack of confidence in self while handling money. Women have not been encouraged to actively manage money as the ecosystem has primarily targeted men.

Men and women undergo different life experiences which differ in their knowledge and attitude towards risks. Making retirement planning more critical for every woman.

Mind Over Money

Women have a greater need to actively manage their finances.

Let’s take a look at four key reasons why women are likely to retire in poverty:

1. Lesser earnings

It is an unfortunate yet well-documented fact that for the same job, women are paid less than men. According to an online source, women earn 82 cents for every $1 men earn when comparing all women to all men. The pay gap increases even more with seniority. Naturally, this means lower savings and a lower retirement corpus. There exist situations where women have chosen to take up a job that pays them less so that they have a better work-life balance. With lesser income, retirement planning becomes very important for women.

2. Career breaks

According to research done by the insurance agency AIG Life, women are nearly 3 times more likely to have to take time off work to look after children. As caregivers in the family, women tend to take more breaks from their careers than men. This could be due to childbirth, taking care of the elderly, or even relocating with their spouse. This break would indicate a certain period without an income, which is bound to disrupt regular savings and investments. This makes it very important for them to plan their finances more carefully.

3. Longer life expectancy

Women have a longer life expectancy than men. In India, the average male life expectancy is 68.4 years and the female life expectancy is 71.1 years. This means that women live longer than men post-retirement and hence need a bigger corpus to survive. Sometimes even working women tend to depend on their husbands to manage money. In the case of their husband’s early demise, widows find it difficult to manage their finances. Effective financial planning and specifically retirement planning thus becomes more important for women.

4. Method of investing

Women are great at saving their money but it often stops there. However, they have been inclined towards investing in traditional instruments like fixed deposits, recurring deposits, or buying gold. But when it comes to creating a corpus for their retirement, which is a long-term goal, women need to invest in instruments that beat inflation. Here, equity as an asset class plays a major role because it acts as a value creator in one’s portfolio.

So, this brings us to the point that effective retirement planning is important for everyone but especially for women because we take career breaks, earn less due to the gender pay gap and women live longer than men, thus need to save 38 per cent more than men.

Therefore, plan for your retirement and be financially independent as in order to be truly independent, every woman must aim to have financial freedom and become self-sufficient or capable of meeting her financial needs.

I know what you’re thinking, that “Hey! I’m too young to start thinking about retirement”! But remember, the younger you start, the better! Retirement at some point is almost inevitable!

Your expenses will continue but income will stop, so you’ll need a good financial cushion to sustain you through your dream retirement! According to the LXME’s Women and Money Power Report 2022, only 2 per cent of women are investing for their retirement.

Here’s how you can start planning for your retirement fund:

Consider your current age, retirement age, inflation rate, the expected rate of return based on your risk appetite, and monthly expenses.

These factors will allow you to arrive at your desired retirement corpus. Post this, you need to identify what investment will be required (either monthly in the form of SIP or a one-shot lump sum investment).

Lastly, it is important that you start early, start small and start investing. To generate long-term gains that beat inflation, you may devote a sizable chunk to equity funds and leverage the power of compounding. Remember, don’t put all your eggs in one basket. Diversify your investments to manage the risks!

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