Retirement is a big goal for any individual. It becomes bigger and causes more anxiety in case of women for several reasons.
One of the main reasons is that women live longer than men. As a corollary, it is more likely that a woman will be the sole survivor among a couple. That means there will be at least a few years that she will need to take full responsibility of her finances all alone. Where the husband manages all finances, as in most families, the idea of handing all that alone becomes overwhelming for women.
Gender pay gap is another sad reality that comes into play. As a result of the pay gap women start at a lower base have smaller amounts available to invest and hence, they tend to end up creating a smaller corpus at the end of their career.
Combining these two factors presents a grim reality of having a smaller corpus to support them for a longer life. Yes, there is likely to be inheritance from the spouse that can support, but there are also women who have been single or where the situations are such that there is little or nothing available from the spouse.
Apart from the career end retirement, a woman might actually have several mini-retirement like situations in her career. It could be the breaks taken for maternity, for providing care and support for family in times of ill-health, or to support the spouse moving to new location for career enhancement. These breaks could range from a few months to a few years. This could also lead to further reducing the capacity to create wealth in the long run.
The role of discipline and consistency in creating wealth is often under-rated. Upping the personal savings rate and having an automated investment system can give fabulous results without having to go on a never-ending quest for the ‘best product’. One of the ways to implement this is to use the systematic investment plans (SIPs) of mutual funds. A SIP allows one to automate investing fixed amounts across debt, equity, gold and hybrid products on a regular basis.
The simple rules of investing prove to be the best for majority of investors for wealth creation. The same apply for retirement, as it requires creation of a large corpus of funds. Five such rules have been enumerated below.
Having a good savings rate is a key component. Women are great savers. If these savings are invested wisely, lot many of the negative factors impacting wealth creation for them can be overcome to a large extent. The normal paradigm of income minus expenses equals savings, should ideally be converted to income minus savings equals expenses. In his manner an initial discipline can be built into the process of wealth creation. On an ongoing basis, one needs to ensure that the savings increase in line with the increase in income over the years. Very often this is missed out as most of the increase in income goes towards lifestyle expenses.
Goals should be aligned to appropriate asset classes. The four major asset classes being, debt, equity, real estate and commodities. Each of these asset classes have their own risk-return parameters. Retirement is a long-term goal. The investments for retirement should thus have products that are suitable for long term, like equity. The choice of investment instrument within equity asset class could vary for different individuals. Some would prefer direct purchase of stocks while others would choose equity mutual funds, or a combination of both.
One should start investing early and continue investing for a long time. If one has not been able to start early for any reason, it is better to start whenever the realisation dawns, instead of ruing the lost time. Starting late will require stricter discipline in terms of having higher amounts that need to be invested, that could translate into having lesser to spend. However, this frugality is way better than having a shortfall in the retirement years where there is no income inflow from job or profession.
Seeking thrill in investing can lead to erosion of wealth created over a long period. Greed for higher returns can lead one to fall prey to frauds. Such mistakes can create serious dents in the corpus being built for large goals like retirement. One needs to stay alert to one’s own behaviour in order to avoid these kinds of pitfalls.
Maintaining records meticulously and sharing it with the spouse is a good way to manage anxiety about managing wealth. Good record keeping habits go a long way in ease of access for the entire family and seamless transfer of wealth over generations.
Even large goals like retirement that may seem impossible to achieve at the beginning, can be reached with small consistent steps, despite all the obstacles that one might face during a lifetime. The wealth creation journey starts first in the mind believing that it is achievable and then bringing it to reality, one step at a time.
Kiran Telang is a Financial Planner.