How To Plan For Retirement As A Single Woman
Research has shown that women have a longer life expectancy than men.¹ So, in this context, managing personal finances for women, assumes even more importance.
Further, single women do not have the support of a spouse when planning for their finances. Hence, it is important to have a proper plan in place for retirement. Here is how you can go about it.
May 2023
8 mins read
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Build an emergency fund:
The importance of an emergency fund in financial planning cannot be understated. As the name suggests, an emergency fund can come handy in financial emergencies like a job loss. How much emergency fund should you have? It is ideal to have at least six to twelve months of your expenses in an emergency fund. You may consider parking your emergency fund in short term liquid funds, as they may potentially give higher returns than a savings account and can be redeemed quickly.
The importance of an emergency fund in financial planning cannot be understated. As the name suggests, an emergency fund can come handy in financial emergencies like a job loss. How much emergency fund should you have? It is ideal to have at least six to twelve months of your expenses in an emergency fund. You may consider parking your emergency fund in short term liquid funds, as they may potentially give higher returns than a savings account and can be redeemed quickly.
Get adequate insurance:
The personal finance planning process is incomplete without insurance.
Life insurance and its benefits become vital when you have dependants like parents or children. A life insurance policy makes a payment to your beneficiaries in case of your untimely demise. It is recommended that you buy a term plan which provides you coverage of six to ten times your annual salary or income.
Buying health insurance for family is also important as high medical costs can drain your finances. You can get a family floater plan of at least Rs 10 lakh covering all members in your family, including aged parents.
List down your goals:
You need to have an idea on how to plan for financial goals both long term and short term. While short term goals could include buying a house, a car or going on a vacation, long term goals would include saving for your child’s education and retirement. Once you have listed down your goals, list down the value of each goal. The value of a future goal would have to account for inflation as well. Smart goal planning is important because different goals come at different moments of your life and have to be planned accordingly.
Find how much you need for retirement:
Retirement is one of your largest financial goals and also the most distant. It is important to have an idea of how much corpus you would need when you retire.
This can be done by calculating how much money you would need every month if you were to retire today. This needs to be adjusted for inflation. Next, you have to assume a life expectancy. If your retirement age is 60 years and life expectancy is 80 years, then your retirement corpus needs to last you for 20 years. Based on these and the expected return on your retirement corpus, you can make an estimate of the retirement corpus you would need and the amount of money you need to save every month. For this purpose, you can a use a financial goal planning calculator available online. You just need to key in the details and the calculator will show you the results.
Let us take an example. Let us say your current age is 35 years and your expected retirement age is 60 years. Your life expectancy is 80 years. Your expenses every month when you retire is Rs 60,000 (at current costs). The assumed rate of inflation is 6%. Further, the expected returns on your investments are 12% and expected returns on your retirement corpus are 8%. You would then need a retirement corpus of Rs 5.2 crore. At 12% expected returns, you would need to save Rs 30,577 every month for retirement.
Do investment planning for retirement:
Once you have an idea of the retirement corpus you need, you need to start investment for retirement planning. Since you have time on your side, it is recommended to invest a large portion of your portfolio into equities. While investing in stocks is an option, it requires some expertise and knowledge. So, to begin with, you can consider investing in equity mutual funds. Over a long period of time, returns from investing in equity mutual funds have the potential to beat inflation. Every month, you could invest through a systematic investment plan (SIP). Equity mutual fund investments through SIPs also bring a discipline to your investments and you get the benefits of rupee cost averaging. However, equities also contain a relatively high level of risk.
Review your retirement plan regularly:
Once you have a retirement plan in place, you should review it at regular intervals. This is important because with changes in your life situation or the investment scenario, you may need to tweak your retirement plan from time to time. Sometimes, when one investment is not performing well consistently, it might make sense to make a course correction. Reviewing your retirement plan regularly helps you know if your retirement planning is on track and make any adjustments, if necessary.
Plan your taxes smartly:
Proper tax planning can reduce your tax liability and help you save more towards future goals. While you can save taxes on life insurance and medical insurance premiums and on home loan EMIs, one option to save taxes is equity linked savings scheme (ELSS). ELSS deduction under section 80c is available for up to Rs 1.5 lakh every year. Through this you can benefit from investing in diversified equity mutual funds and save taxes at the same time.
Get help with financial planning: You now know why financial planning is necessary. However, in our busy lives we may either not have the time or the expertise to manage our finances on our own. It is recommended that you get a professional financial advisor to help you with the financial planning process.
As the saying goes, if you fail to plan, you plan to fail. Having a retirement plan in place will ensure that you lead a happy and peaceful life in retirement.
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindia.com/mutual-funds/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
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