Seven retirement planning tips for women

An increasing number of women in India are now working professionals and are often equal if not prime breadwinners for their family. Retirement planning is as important for them as their male colleagues or spouses. 

In many cases, retirement planning becomes even more important for women if they plan to take a mid-career break or early retirement for family obligations or to become an entrepreneur. In these scenarios, a retirement nest egg will provide them with financial independence and confidence when they don’t have a regular job. It can also provide them with the seed capital for their new venture.

Here are seven ways for women to start their financial planning for retirement:

1. Start Early

Time is an important factor in retirement planning. So, start saving and investing for your retirement as soon as possible. The earlier you start, the more time your investments will have to grow. In the short term, investment grows arithmetically but over 15-20 years, the value of investment grows geometrically. 

In other words, what doubles in five years, quadruples in ten years and becomes 16 times in 20 years. This is called the compounding effect in the financial industry. 

Even small contributions made consistently over time can accumulate into a substantial retirement fund.

2. Diversify Investments 

Invest in a mix of assets to spread risk. Asset classes such as equity, gold, real estate and bonds follow a different cycle and when one does well, the other may languish and may not give any meaningful returns for many years. In extreme cases, risk assets such as equity or gold can see a sharp fall in their value in the short to medium term. 

That’s why it is important to diversify across stocks, bonds, real estate, and alternative investments like gold, silver or mutual funds. 

For example, you could invest in diversified equity mutual funds such as HDFC Equity Fund or SBI Bluechip Fund, which offer exposure to a variety of stocks. Another option is to invest in balanced advantage funds that invest in both equity and bonds. You should also hedge the financial risk by investing at least 10 percent of your portfolio in precious metals such as gold and silver.

3. Consider Fixed Income Instruments

Fixed-income instruments like the Public Provident Fund (PPF), National Pension System (NPS), or Senior Citizen Savings Scheme (SCSS) can provide stable returns and tax benefits. PPF, for instance, offers tax-free returns and has a long-term tenure which suits retirement planning. These investments may provide poor returns in the short term compared to say equity, real estate or even gold. But they provide liquidity and stability to your portfolio, and you liquidate them in case of emergency without the risk of losing your capital, unlike risk assets.

4. Build an Emergency Fund

Women must set aside funds specifically for medical emergencies and unexpected expenses. They must aim to have at least six to twelve months' worth of living expenses saved in a liquid account such as a savings account or a short-term fixed deposit. 

The financial markets and the job scenario have become volatile and unpredictable over the years. This was in full display during Covid19 pandemic when millions lost their jobs and livelihoods within a matter of days. An emergency fund will be an insurance policy for your family and if you are lucky, it can grow to become the second retirement corpus for you.

Also Read: How to create your own medical emergency fund

5. Health Insurance

Invest in a comprehensive health insurance plan to cover medical expenses during retirement. Consider policies that offer coverage for critical illnesses and include provisions for lifelong renewability. For example, the Max Bupa Health Companion Plan and HDFC ERGO Health Suraksha Gold Plan offer extensive coverage with various benefits. But remember, health insurance has become expensive, especially after the COVID-19 pandemic, so don’t over-invest in them either at the expense of your other financial commitments.

Also Read: Why women need a separate health insurance cover & how to go about it

6. Calculate Retirement Corpus: 

Estimate your retirement expenses based on your current lifestyle and expected inflation. 

A common rule of thumb is to aim for a retirement corpus that is 20-25 times your annual expenses. 

Use retirement calculators or consult with a financial advisor to determine the amount you need to save. Be a little ambitious while estimating the corpus as inflation or the annual rise in the cost of living is most often likely to be higher than initial estimates. So it’s better to err on the higher side than on the lower side.

7. Plan for Longevity

Women tend to live longer than men on average, which means retirement savings may need to last longer. They should plan for a retirement period that could span 20-30 years or more and adjust savings accordingly. This may translate into higher expenses on medical care, living expenses and even family obligations. So plan accordingly.

Remember, these are general guidelines and it's important to personalize your retirement plan based on your financial situation, goals, and risk tolerance. Consulting with a qualified financial advisor can provide personalized advice tailored to your needs.

Happy Investing!

(Disclaimer: This article is for information purposes only. Readers are advised to consult a certified financial advisor before investing in any of the funds or securities mentioned above.)

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist). 

Also Read: Five ways to generate regular income after retirement

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