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Why Factoring In Life Expectancy, Career Breaks, And Inflation Are Critical In Retirement Planning

The role of retirement planning cannot be emphasised enough when social security benefits are insufficient. A recent study shows that women could face financial issues different from men

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Versha Jain
September 2, 2023
Factoring Is Critical In Retirement

Factoring Is Critical In Retirement

Retirement planning is vital for financial well-being in old age. A recent study by wealth management firm FinEdge found that women face a unique set of financial challenges than men. For instance, career breaks during childbirth or to take care of the family, etc., may significantly reduce their salary when they rejoin the workforce after a gap. It is further compounded by the fact that, as studies show, women have higher life expectancy than men.

While life expectancy is vital for both genders in retirement planning, women, in particular, might have to go the extra mile, factoring in a longer life span, to ensure financial security.

Challenges For Women 

Aniruddha Bose, chief business officer at FinEdge, says, “Since women are more likely to take career breaks, be risk averse, and outlive their spouses, their retirement planning assumes importance. Also, an event like a divorce or the early unexpected death of a spouse can have a catastrophic impact if women do not plan their own retirement properly.”

However, while retirement planning is important, Rushabh Desai, founder of Rupee With Rushabh Investment Services, says, “Today, men and women are equal, I don’t think anyone needs to plan their finances differently. Finances should strictly be planned based on goals, risk, and time horizon. Over the years, life expectancy has increased due to quality healthcare and lifestyle. Thus, planning needs to start early and must be planned for 20-30 years post-60.”

Desai adds, “While women take breaks from work for reasons such as pregnancy, when women aren’t working/earning, the increased expenses can be taken care of by the spouse to balance it out.” Hence, they should actively participate in the family’s overall planning, including finance.

Retirement Planning

While it is not important to plan for retirement separately, nevertheless, women should take retirement planning seriously. Fortunately, women are becoming aware of retirement planning. According to Bose, 30.82 per cent of women investors in the survey said retirement planning is a priority for them. The numbers are encouraging because women have traditionally ignored retirement planning, assuming it as their husband’s prerogative.

Says Desai, “While planning for retirement, inflation needs to be factored in at the individual level. The standard headline inflation will not be standard for all. Everyone’s needs, wants, and lifestyle will be different; thus, the inflation number will be different as well.”

“Women in India outlive men by an average of three years, and this gap is widening”, and they will need an additional amount in the corpus, explains Bose. For example, “To put the numbers in perspective – the amount of money required to fund a cost of living of Rs. 1 lakh/month (in 2023 terms) for an additional five years between the years 2073 and 2078 will exceed Rs. 2 crores. Obviously, one cannot turn a blind eye to this,” says Bose.

Things To Keep In Mind 

Retirement planning is for the long term and requires constant efforts. So even if there are a few breaks, like family care, illness, etc., or rides such as promotion, good opportunities, etc., the investment journey should continue to reach the destination.

According to Bose, “Setting clearly quantified goals, understanding concepts like risk/reward and compounding, setting the right expectations with respect to investment returns and their possible variance, and having the support of a qualified investment expert are a few things that can go a long way in promoting measured risk-taking among women investing for retirement.”

Desai adds, “Earning and having an income stream post-60 is important. Choosing smart investment plans like a 10-20 per cent annual SIP top-up will help make planning much easier.”

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