Life Freedom Index,a survey conducted by HDFC Life in association with ValueNotes reveals that only 13 per cent of urban women are extremely confident about the adequacy of their financial plan to meet all their lifetime needs. There is always an overconfidence bias in these surveys. This brings us to the larger question: are women planning for their retirement and why do they need to plan?
Empirical evidence suggests women have fewer working years and lesser time to save compared to their male counterparts. This is because of the traditional roles that women play in our society that leads to disruptions at certain stages in their careers. This leads to less time in workforce and sometimes,unfortunately,lower incomes.
Apart from the lower lifetime earning potential,women outlive men in India. These years have their costs; the resources must last longer to cover them. Also,womens genetic and biological makeup makes them vulnerable to medical and health situations that are unique.
These are compelling reasons for women to focus on retirement planning in a structured manner as early as possible.
A. The first step to meet your retirement goal is to take stock of your current financial position,and ask yourself the questions below.
When you want to retire?
How much you will need to live through retirement?
How much you can afford to save?
B. Look out for investment avenues: To invest wisely,you need to balance your desire for growth with your risk taking ability. Most women are risk averse and are more comfortable in safer investment avenues. There are diverse investments options,but you must decide which balance of risk/ return is right for you. A visit to a professional financial consultant would be useful. Reviewing the performance of your selected investment is important. You may need to adjust your investment strategy to be slightly more conservative as you age and approach retirement target age.
C. Educate yourself on investments and financial planning: It is very critical to educate yourself about the different investment vehicles along with the different life stage events for right approach to financial planning. You should cultivate a habit of reading different personal finance columns,and related publications to brush up your knowledge on finance.
D. Save systematically and be disciplined: Our research shows that most women follow some level of discipline in adhering to their financial plan and management,which is a big positive towards their retirement goals. A planned small saving each month can add up to a lot over the years. For example,Mrs Shah and Mrs Bakshi both start investing in a savings plan. Mrs Shah invests Rs 50,000 per month while Mrs Bakshi invests Rs 2,000 more than Mrs Shah every month.
After 15 years,assuming an average return of 6 per cent,Mrs Bakshi will have Rs 5.82 lakh more than Mrs Shah. Thus the trick is to save as much as possible and systematically.
E. Realigning your savings as per life stage: It is important to review your retirement plan in view of the life stage changes – marriage,kids,purchase of asset or taking a sabbatical. If your income has increased,you can allocate more towards your retirement plan. If your liabilities have increased then realign the investment course,but do not stop
investing in your retirement plan.
Preparing for retirement isn’t just about saving. It is about knowing what you will need in retirement and then creating a plan that will help you get there. There is a natural tendency to delay our retirement planning thinking that our retirement is at a distance and we have ample time left to start one. We may however,do not realise that waiting even just one more year to start saving could create a shortfall in our desired corpus. For women,a delay has significant consequences.
When it comes to retirement security,women typically find themselves at a disadvantageous position when compared to their male counterpart. Hence the importance of good financial planning and adequate coverage become apparent.
The Author is Executive VP and Head,Marketing and Direct Channels,HDFC Life