How inadequate savings could jeopardise women's retirement planning

Not allocating adequately to equities, which can potentially beat inflation, is another error they must avoid

Seema Chetri (name changed on request), 54, holds a PhD in engineering sciences. This Mumbai-based professor teaches at one of the country’s top technology institutes and has authored several engineering textbooks. And yet, like millions of well-educated Indian women, she entrusts her finances to someone else.

Chetri says, “When I was younger, my salary and savings were managed by my father-in-law, an office clerk. Later, my husband, who was in the paramilitary services, took over. Currently, my 30-year-old son, a fashion designer, handles my finances. Despite being neither dull nor incompetent, I have never taken charge of my own money.”

Chetri represents millions of Indian women who avoid the responsibility of managing their finances due to a variety of reasons, including cultural and social conditioning. In many households, men have traditionally assumed the role of financial decision-makers. Mrin Aggarwal, founder director, Finsafe India, says, “Due to time constraints and lack of knowledge, women tend to put money management way down on their priority list. The combination of information overload and a lack of financial discussions in their growing up years further exacerbates their uncertainty about handling their finances.”

Financial planners say that the minority that does handle its finances tends to make several costly mistakes. 

Retirement woes

Although women are typically skilled at saving money, they often struggle with retirement planning. Priti Rathi Gupta, managing director (MD) & founder, LXME, says, “According to a survey done by us, only 2 per cent of women save for retirement. Data show that women retire with one-tenth the corpus that men do, all other things like educational qualification, job designation, etc. remaining the same.” Remember Indian women have a longer average life span than men.

The disparity in retirement savings between men and women can be attributed to several factors -- such as gender pay gap, differences in career trajectories, and a lack of awareness about the significance of saving for retirement. Gupta suggests, “If your spouse earns more money than you, let him contribute to most of the expenses so that you can save and invest a percentage of your income.” 

Beaten by inflation

A significant number of women are hesitant to invest in financial instruments that can outpace inflation. Gupta says, “According to a survey done by us, only 16 per cent of women invest their money in financial instruments. About 65 per cent put the money in savings accounts while 37 per cent keep it at home for emergencies.”

Inflation has averaged 7.5 per cent in the past 42 years. Aggarwal says, “Your money is not growing if your investments don’t beat inflation.” She recommends that women consider exiting those investments that are not yielding over 7 per cent per annum over the long run and reinvest in equity products that can offer better returns.

Leveraged bets

Women often have to take career breaks to tend to family responsibilities. This causes them to lag financially. Some try to catch up. Dilshad Billimoria, board member, Association of Registered Investment Advisors (ARIA), says, “Many are enticed by the promise of double-digit returns made by providers of stock tips. Such brokers or agents get investors to commit large amounts in a hurry, under the pretext that there’s a cut-off date for these investments.”

Many women fall for such get-rich-quick schemes and take out personal loans at interest rates as high as 20 per cent to make equity investments. Billimoria points out the potential dangers of this approach: “What if the returns don’t cover even the interest on the loan? Worse still, what if the returns are negative?”

These women not only risk losing their principal but also face the added burden of high interest rates. Billimoria emphasises the importance of never borrowing to invest in the equity market.

Aggarwal suggests a safer alternative. “Consider equity mutual funds which are professionally managed and also offer tax advantages. Even a simple Nifty 50 index fund will do, provided you stay invested for the long term.” 

This Women’s Day resolve to either enhance your knowledge of money management or enlist a financial planner’s help.

Women have the loan advantage

• A recent CIBIL survey shows that women, on an average, tend to be better borrowers and hence exhibit better credit profiles
   
• Many lenders offer home loans to women at lower rates of interest than to men
   
• In many states, the stamp duty rate is lower for women
   
• Many lenders offer education loans to women borrowers at lower interest rates