Why women need a better retirement plan

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Women face unique challenges in retirement planning. They typically live longer than men, earn less throughout their careers, and take more career breaks to be a caregiver for children or aging parents. These factors can make it difficult for women to accumulate sufficient retirement savings.

For women, being financially secure is as important as being financially independent. These factors can impact their lives to different degrees and leave them to fend for themselves in their golden years.

Factors affecting women’s retirement plans:

1. Pay gap

According to the International Labour (ILO) Organization, on average, women globally are paid about 20 percent less than men. The pay gap increases with seniority and results in missed opportunities and low lifetime earnings.

Low lifetime earnings can leave women at a disadvantage when it comes to retirement security. Without adequate retirement savings, women may face financial difficulties in their later years, which can impact their quality of life and independence. Therefore, women need to save more and find the right investment instruments to achieve financial security in retirement.

Also read: 6 Tax-saving instruments you must know of

2. Longer Life Expectancy:

Studies indicate that women have a longer life expectancy than men, which is often overlooked when planning retirement. Women’s life expectancy rate stands around 70.3 years at birth, compared to 67.4 years for men. With more years of life, women need adequate funds to cover their expenses in their old age.

While we have seen a significant portion of women join workforces, the majority of them still don’t actively plan their finances. Married women tend to rely on their spouses whereas unmarried women leave financial planning to their fathers. When women are dependent on the men in the family for financial decision-making, they may suffer or be taken advantage of after the demise of their spouse.

This can be especially challenging for women who have not saved enough or are clueless about where their money is invested. It is also a common phenomenon in married Indian couples to join their finances, here’s why you should rethink opening a joint account with your spouse.

3. Career Interruptions:

Women often have to take career breaks to take care of children or elderly relatives. The societal expectation that women are primarily responsible for caregiving can impact their ability to work full-time and advance their careers. It is common to see women give up their careers or take up lesser-paying jobs to take care of the children, maintain a work-life balance, etc.

Career interruptions can have a long-term impact on a woman’s retirement savings, as women may miss out on opportunities for career advancement, salary increases, and retirement benefits like pensions.

4. Debt trap:

As women tend to have lower incomes than men, they are likely to fall prey to the debt trap while trying to cover basic living expenses. With high-interest rates and mounting debt, women may find it difficult to set aside money for retirement savings so it can also affect women’s ability to save for retirement. Additionally, the debt trap can make it challenging to invest in long-term savings vehicles that can provide a higher return on investment.

The debt trap can delay women’s retirement plans. With mounting debt and limited savings, women may have to delay their retirement to work longer and save more. This can be especially challenging for women, who often take on caregiving responsibilities for family members, which can make it difficult to work full-time.

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5. Low-risk appetite

Risk appetite is the level of risk an individual is willing to take on when making financial decisions. Studies show that Women are more risk-averse than men on average. Women’s risk appetite can be affected by a variety of factors, including societal norms, gender stereotypes, and financial education.

A low-risk appetite can limit women’s ability to generate wealth and achieve financial goals. A low-risk appetite can cause women to rely too heavily on traditional financial products like savings accounts, government schemes, etc. While these options offer a measure of security, they may not provide the returns necessary to keep pace with inflation or meet long-term financial goals.

After all, retirement doesn’t just have to be about covering medical bills. It can also be about traveling to places you always wanted to go or starting a business you didn’t have funds for earlier. A high-risk appetite lets you invest in potential wealth instruments, which put you in the position to dream bigger even in your retirement.

How to make a smarter retirement plan as a woman

Retirement planning is crucial for everyone, but women and men tend to undergo different life experiences which makes it more difficult for women. However, these tips will help you pass those hurdles and make a smart retirement plan.

1. Take charge of your finances

The idea of handling your finance by yourself may seem intimidating at first, but it’s better than leaving someone else in charge of your money. If you are struggling to understand a few concepts like taxes or investments, you can ask your friends or colleagues to help. You can also get a financial counselor until you learn to do it yourself. Just ensure that you are actively involved in managing your finances.

2. Have a comprehensive retirement plan

A wholesome retirement plan needs to factor in things like your goals, investment horizon, asset allocation, taxes, risk tolerance, and inflation. You can maintain an independent retirement fund considering these factors and manage your other living expenses separately. This lets you plan your retirement without jeopardizing your other life goals and saves you from the guilt of burdening your children.

3. Start Investing Early:

The earlier you start investing, the more time your money has to grow. By giving your investments more time to compound, you can potentially earn a much higher return on your money over the long term. Even small contributions made early on can lead to a higher retirement corpus. It lets enjoy a stress-free retirement knowing that you have enough money saved to support your lifestyle.

4. Get a health care plan

Any medical emergency can wipe off your life’s savings in an instant. Therefore, it’s important to have comprehensive health coverage. Not only it saves you from exhausting your retirement fund, but also gets you access to better care without having to worry about the cost.

Summing up:

Women need to rethink their retirement plans to ensure that they have enough money to support themselves during their retirement years. We need to take into account longer life expectancy, gender pay gap, career interruptions, higher healthcare costs, etc, in our retirement strategy. This will help women achieve financial security and independence in their retirement years.

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