We all have this dream of a leisurely retirement where we can travel, pursue new hobbies, rediscover old passions and live life with joy and dignity.
What about a homemaker who spends her life doing unpaid work in their household and has no retirement benefit? Is she allowed to enjoy her retirement?
Let me tell you that with sensible planning this is absolutely possible as retirement is not an age it is a time when your investments that have earned enough and more to take care of all your expenses.
However, there are a few conditions:
Homemakers need to be well aware of their family’s financial position.
They need to get involved in the financial planning activity with their spouses and should play an active role in the investment process.
Excuses like my spouse is managing or the lack of time to understand are not acceptable.
Let us think about any regular day in a homemaker’s life. It typically consists of running a household, raising kids, helping the elderly, and managing the household budget. If you think about it, a homemaker is quite adept at planning, process orientation, and has a lot of patience and passion. All these are the qualities required to be a long-term successful investor.
Additionally, it is important to know the vulnerabilities too. Women have unique set of challenges to deal with like:
Higher life expectancy,
women related illnesses or
a possible change in their circumstances like a divorce, separation, or loss of a spouse.
These seem reason enough to start thinking about retirement. Here are 9 steps to planning a joyful retirement:
Step number 1: Pay yourself first – This simply means that while managing the household budget save first and then spend. 50% should be mandatory expenses like food, fees, utilities, EMIs, 30% on discretionary items like movies, travel, shopping and eating out and 20% should be saved.
Step number 2: Invest - Understand that saving is not enough as inflation erodes the value of money over time. This is the biggest challenge in retirement when income stops but the expenses remain and grow. Investing can help safeguard against inflation.
Step number 3: The earlier the better – Start investing as soon as possible. If you start investing Rs. 5000 per month at the age of 25 and continue for 10 years and then stop and stay invested, you would have invested Rs. 6.6 lakhs which would grow to Rs. 4.3 Crores at an average rate of 15% per annum. But if you missed that bus and started investing Rs. 15000 per month from age 40 and continue for 20 years you will accumulate Rs. 2.1 Crore. A higher investment amount later cannot compensate for the growth potential of starting early
Step number 4: Invest in the right assets – Retirement Planning consists of 2 separate phases, the accumulation phase where you are saving up for retirement and the distribution phase where you are withdrawing from your accumulated corpus during retirement.
Since accumulation for retirement is a long term process, growth assets like equity is the place to be in. Growth assets are typically risky since their value fluctuates in the short term, but they appreciate in value in the long term and help beat inflation.
In the distribution phase, the corpus should primarily provide a regular income so it should be in income generating assets like Bonds or Debt Funds. However, it should have a small element of growth to help beat inflation during the retirement years.
Step number 5: Choose the right product – Whether you invest in direct equity stocks, fixed deposits or bonds or go through the managed portfolio approach with mutual funds do evaluate the cost, return, lock in period, penalty and holding period of the product and pick the one most suitable for you.
Step number 6: Follow a disciplined approach – Invest regularly and make investment a habit. Timing the market is not important but time in the market is very important.
Step number 7: Prepare for Emergencies – by keeping around 3-6 months of mandatory expenses money aside you will ensure that your retirement is not derailed incase of loss of job or any such exigencies.
Step number 8: Insure – Have adequate health and life insurance for the family to protect against financial implication of death, disease, or disability. It is recommended to buy a personal health cover even though the company has provided one and keep increasing life cover with increase in income. Life cover should be around 15 times the annual income
Step number 9: Thorough Paperwork – Ensure joint holding with nomination in your bank accounts and investment accounts to reduce stress later.
These steps should help you to become financially independent in your golden years in the era of modern nuclear families. Though homemakers never really retire, retirement for them should not mean insecurity, poverty or ill health but adventure, travel , dignity and joy!
Labdhi Mehta
( India )