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Financial Planning

Retirement Planning For Women: Role Of Financial Literacy, Common Mistakes To Avoid

Retirement planning is as important for women as it is for men. Here’s why it's important for women to learn the concept of retirement planning and the mistakes they should avoid

Retirement Planning for Women
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Retirement planning and financial independence are two essential things that people of every age and gender should be aware of.

However, women face many unique challenges, and thus, have to jump through hoops in order to be seen as equal or even fight for their right to be perceived as equals.

Financial planning is important for women as it helps them become independent, financially sound, while also providing additional income to the family. While both men and women should plan their retirement, there are some additional factors that women should consider. These are longer life expectancy, career interruptions, wage gaps, and lack of financial literacy. 

To overcome these challenges, women must understand the importance of financial literacy and be aware of common mistakes made during the retirement planning process.

The Role of Financial Literacy

Financial literacy is crucial for a successful retirement plan, but women lag behind men due to pay gap and lack of awareness.

This can lead to poor financial decisions and affect long-term savings and retirement goals. To improve financial literacy, women should focus on early saving, understanding investment options, budgeting, and concepts of social security and pensions. This will enable them to take control of their financial future, ensuring long-term savings growth, and effective allocation of resources.

Anath K. Rathi, co-founder, MIRA Money said that retirement and general investment planning for women require significantly more financial literacy. 

He says, “The first step is to stop relying on their fathers, brothers, husbands, or sons for investment decisions. Women need to be independent enough to make their own choices, which can only happen through financial education.” 

He explains that this independence in decision-making makes women feel more responsible and proactive in their financial planning.

He shared various avenues to gain financial literacy. 

To start with, women can attend financial literacy sessions organised by many fund distribution partners.

These sessions will help them understand the basics of investing, while also allowing them to engage with fund managers and investment advisors while asking them challenging questions before finalising an investment plan.

Common Mistakes in Retirement Planning

Financial literacy is crucial for women, but they often make common mistakes when planning for retirement, which can lead to errors.

These include underestimating retirement needs, or delaying saving. Also, focusing too much on saving and not enough on investing, or, failing to plan for healthcare costs can be construed as errors.

Underestimating retirement needs is common, as longer life expectancies and rising healthcare costs may result in higher retirement needs than anticipated. 

He advised women to take professional help from a financial advisor to calculate their expected expenses and set realistic savings goals.

According to him, delaying savings can significantly reduce the growth potential of their retirement funds, so it's crucial to prioritise retirement savings. Failing to plan for healthcare costs, particularly for women over 50, can lead to financial stress in retirement, he said.

Women should consider long-term care insurance or set aside specific savings for healthcare needs, he added.

He said that over the past 21 years, he has observed a trend: many women tend to take fewer risks than men when it comes to investing, largely because they may not be fully aware of the potential returns that equity investing can provide.

This leads to women investing in low-yield fixed deposits or, at best, in real estate. However, these options typically do not generate sufficient capital for their long-term retirement needs, he added.

He says: “We believe that women should strive for greater financial literacy. By educating themselves about the various asset classes available in India today, they can focus on using equity investments, which are investments in stocks or mutual funds, to build a stronger retirement portfolio.”

He said the term "personal finance" refers to money management that is tailored to the individual, emphasising its specific nature. What works for one person may not work for another. However, many people rely on general guidelines, such as allocating a certain percentage of investments to equity or debt based on their age. While these may be a good starting point, they are not ideal for long-term investment strategies.

Importance of Customised Planning

Everyone has their own unique financial goals and needs for which they might want an advisor to help them customise a plan suitable to their needs. It is also important to understand that financial literacy cannot be acquired overnight; it is a process that takes time. 

Rathi says, “One of the best ways to enhance financial literacy is to hire a good financial advisor. When looking for an advisor, consider their qualifications, experience, and track record. Be willing to ask tough questions and ensure they understand your unique financial situation and goals.”

Rathi adds, “As you age and your financial situation becomes more complex, developing a personalised investment plan that aligns with your unique risk profile is crucial.” For instance, even if your friend dislikes equity and views the stock market as risky, you may still succeed in long-term investing despite market fluctuations.

It’s essential to avoid hastily adopting someone else’s investment strategy. Instead, consult with a qualified investment manager. Share your risk profile with them and ask for a tailored plan for your financial goals, he adds.

Retirement planning for women is a crucial and often overlooked aspect of personal finance. By increasing financial literacy and being aware of common mistakes, women can better position themselves for a secure retirement. Understanding the importance of early saving, investing wisely, and planning for future healthcare costs can make a world of difference in ensuring financial stability during retirement. With the right knowledge and strategies in place, women can take control of their financial futures and build a comfortable retirement.

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