Women need to take active part in helping their husbands plan for their retirements.
Women tend to live longer. Studies in the past have shown that life expectancy of women is higher than their husbands. This means, living-off on pension money for a period longer than living together. A woman at home needs to be aware of the retirement plan that her husband has designed. If there isn’t a plan, it’s high time you should prepare for it.
If your husband is a salaried employee, in all likelihood, there would be a Provident Fund being maintained by him. But, if he feels that Employee Provident Fund (EPF) is sufficient enough to take him through retired years, make him think again. It’s true yet scary that one could heavily fall short if he is solely depending on provident fund. EPF (and even public provident fund) being 100% debt oriented assets fails to negate the impact of inflation. The real return i.e. inflation-adjusted return is low and therefore merely helps to preserve your savings. While inflation hovers around 8-9 percent, the returns from fixed income investments too are around 9 percent. Debt assets are preservers of your capital and at best help in meeting short to medium term goals.
The better alternative
It is therefore imminent that one chooses equities to reach long term goals. The idea should be to generate returns which are at least 3-4 percent higher than inflation. Even a small difference in returns impacts the maturity corpus. For creating wealth over longer term, real returns and not nominal returns matter. Studies in the past have shown that equities have delivered high real return than any other asset class including gold, debt or real estate over long term. Consider this – Sensex’s compounded annualized returns over past 10-15-20 years has been 17 percent, 12 percent, 11.23 percent respectively. Therefore, retirement goal which is typically this long makes equities its safest bet.
The Mutual Fund way
For beginners and even for a late starter, equity mutual fund is a smart solution to save for retirement as they have the potential to deliver high returns that can offset the impact of inflation in the long run. Once begun, stay invested to reap the long term benefits. Importantly, choose MF schemes that are 100 percent in equities especially during accumulation phase and give you option to move into debt fund over time. Such inbuilt-feature in schemes to shift between equity and debt assets helps.
Use the SIP (Systematic Investment Plan) way to create wealth. SIP’s involve investing a fixed amount of money at regular intervals. In doing so, the race to capture the highs and lows of the market is avoided. In effect, the cost of your investment is averaged over a period of time. The essence of SIP is that when the markets fall, you acquire more units and vice versa. Nearing retirement, shift equity accumulations towards debt fund to preserve capital. Once retired, start withdrawing required amount from the fund and let the balance continue to participate in market growth.
- Start early
- Earmark funds towards retirement
- Choose 2-3 equity MF – Preferably, retirement focused funds which are 100 percent in equities
- Keep it running- Put bonus, windfalls into same SIP (same folio)
- Increase SIP amount nearing retirement
- De-risk your investments with about three years away from retirement
- On retirement, start SWP (Systematic Withdrawal Plan) option to start getting pension
Remember, returns from equities are volatile as it depends on market movements which in turn are greatly influenced by several economic and non-economic factors. Volatility is more pronounced in short term but reduces and becomes largely predictable over long term. Hence, it’s better to ignore day-to-day and non-incidental events and stay invested.
Starting to save for retirement brings in discipline to your investing process. What you need to save for retirement is much less than what is required to save for children’s needs. Check, if your husband is realizing the full potential of equities in the right way. Start early, benefit from the power of equity and move in your golden years comfortably.