The longevity challenge and financial planning for women
When it comes to financial planning, the longevity conundrum is a harsh reality for women. According to the World Health Organisation, women live longer than men on average by six to eight years. This means that women need a bigger financial reservoir than men to ensure their financial security in their old age which makes the nuances of long term financial management trickier for women.
What makes matters more complicated is the fact that women have to wade through multiple hurdles by virtue of their gender that can either delay or derail the process of savings and investments that they can fall on during their old age. First, there’s the gender pay gap which is the difference between the median earnings of all men and women under the ambit of paid employment.
According to the Gender Gap Index 2020, India has fallen to the 112th position from its erstwhile 108th position in 2018 and it will take India close to 100 years for India to bridge the gap in areas of politics, economy, health and education. It ranks 149th in economic participation and opportunity, and 117th in wage equality for similar work.
This means that it takes longer for a woman to accumulate a certain amount of wealth as compared to a man because of the disparity in income. Women are also at a disadvantage when it comes to financial literacy - data from the 2017 Global Financial Literacy Excellence Center study on gender gap in financial literacy showed that only 20% of women understood financial concepts (a lag of 8 percentage points over men). Also, the fact that majority of women suffer setbacks on the career front after the birth of children makes the gamut of financial planning for women for their old age riddled with challenges.
Strategising the right way
The right strategies enacted at the right time can go a long way in ensuring that women have enough wealth to spend their golden years comfortably with minimum or no financial distress. AMFI-certified MF Distributor, Mukund Seshadri says, “Firstly, women should start taking charge of their finances because they would know their needs best and not tend to wallow in the comfort zone of handing over financial management to the men in the family. Secondly, they should jot down the requirements and financial goals and earmark investments accordingly. Investments should be made with a purpose and not because some investment product happens to be in vogue. That way, you would be less prone to making whimsical investment decisions which may not be aligned with your goals.”
Parvati Iyer, chief investment officer at Femwealth.com, an online wealth management platform believes the value of time cannot be underestimated when it comes to creating a sound reservoir for women that can help them sail through their old age. “Women need to plan for a larger retirement corpus and factor in additional healthcare expenses because they live longer. This means that while the working or saving timeframe is similar to men, they simply need more money put away. All these reasons should encourage women to start investing and saving early. By starting early, one gets a longer time span to invest, that helps build more wealth. Compounding works best over longer timeframes and women should take advantage of that. This is more pronounced in the equity asset class since the returns are better. Women can invest across asset classes like equity, debt and gold and thus diversify according to their risk profile. Mutual funds can offer the best exposure to these asset classes,” she says.
The intricacies of gender
Given that traditional gender roles and societal expectations have a significant bearing on women’s finances, drafting a financial plan without considering those and one’s situation in life would be imprudent. Iyer narrates, “The financial situation of a new mother who has a childcare support system is going to be very different from a woman who is deprived of it. As women tend to be caregivers - taking care of children and elderly relatives too, they either tend to take career breaks or shift from conventional work structures that can have a bearing on their income. Therefore it is necessary to increase their investments each year as their salary increases. Additionally with a long term investment horizon they can afford to take a bit more risk and increase the equity exposure to balance out years where they might not be able to invest. This would have a multiplier effect on their wealth. Systematic Investment Plan (SIP) is crucial to inculcate discipline and increase wealth steadily.”
Another way in which women can amp up their coffers is by creating a ‘gifting and giving’ corpus, suggests Vikas Gupta of Omniscience Capital. “In the folds of the conventional Indian family structure and traditions, older women are known to pamper younger members of the family with gifts and cash on festivals and other occasions. If possible, women should establish a separate corpus for this purpose so that they do not have to tap into other investments and they can use the dividends or interest from this fund for gifting purposes.”
• Should you have plans for starting a family, opt for a health insurance plan that not only provides coverage for maternity but also for women-specific critical illnesses.
• As boring as it may sound but there’s no alternative to budgeting. Being aware of where your money goes is the first step to getting a handle on your money. Once you identify areas you can cut back on, you can put it aside for your retirement fund.
• As women tend to be caregivers - taking care of children and elderly relatives too, they tend to take career breaks or shift from conventional work structures that can have a bearing on their income. Therefore it is necessary to increase their investments each year as their salary increases.
• Systematic Investment Plan (SIP) is crucial to inculcate discipline and increase wealth steadily.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.