Career breaks are more common among women, and the reason is the responsibility they often take on to care for their children and family. While this is often considered normal and unavoidable, in many cases, it has a significant impact on the financial future. It becomes even more crucial for women who have taken a career break to plan their retirement carefully. Building a retirement plan after a career break is totally possible, and it can be quite empowering.
The Impact of a Career Break
Career breaks can create a range of financial issues, including a pause in income, a decrease in savings, and even a lapse in contributions to pension funds and other forms of retirement savings. The impact sometimes continues even after the break ends. The re-entry might result in a lower salary package or, in some cases, a switch to part-time roles. Overall, all of these factors slow down the growth of income and wealth for the individual. For this reason, it is essential to mitigate the financial impact of this setback by carefully designing a retirement plan.
Why Retirement Planning Matters
A retirement plan , especially an early retirement plan, is a great way to ensure your future financial security. This ensures that you don’t spend all your income in the short term and provides a safety net for the latter years of your life. Women statistically live longer than men, and it is even more critical to carefully plan for your retirement. Now, on top of all this, add a career break, and it becomes almost a non-negotiable to have a solid plan to lean back on.
Steps to Build Your Retirement Plan
Here’s how to create a retirement plan that works for you:
Assess Your Current Finances
Start by reviewing your savings, investments, and debts. Include any EPF, fixed deposits, or mutual funds. Calculate your net worth (assets minus liabilities) to understand your starting point. If you’re married, discuss joint finances with your spouse to align goals.
Set Clear Retirement Goals
Decide when you want to retire and estimate your monthly expenses in retirement. Account for inflation (assuming 6-7% annually) and rising costs, such as healthcare. For example, if you need ₹50,000 monthly today, you might need ₹1.5 lakh in 20 years. If aiming for an early retirement plan, factor in a longer retirement period.
Bridge the Savings Gap
A career break may have reduced your savings. Calculate how much you need to save monthly to meet your goal. Online retirement calculators can help. For instance, to build a ₹1 crore corpus in 20 years with 10% annual returns, you’d need to invest about ₹15,000 monthly in mutual funds.
Choose the Right Investments
Diversify your portfolio to strike a balance between growth and safety.
Mutual Funds/Equity SIPs: Ideal for long-term growth (10-12% returns) if you have 10+ years until retirement.
Public Provident Fund (PPF): Safe, tax-free returns (around 7%) for conservative savers.
Fixed Deposits: Low risk but lower returns (5-6%).
National Pension System (NPS): A low-cost retirement product with market-linked returns and tax benefits.
When planning for early retirement, consider equities for higher returns, but shift to safer options as you approach retirement.
Maximise Tax Benefits
Use tax-saving options like PPF, NPS, or Equity-Linked Savings Schemes (ELSS) under Section 80C (up to ₹1.5 lakh annually). These reduce your tax burden while building your corpus.
Re-enter the Workforce Strategically
If you’re resuming work, negotiate salaries that reflect your experience. Consider freelancing, part-time roles, or upskilling to boost income. Direct extra earnings to retirement savings to catch up.
Plan for Healthcare
Medical costs increase with age, so consider purchasing health insurance with adequate coverage (₹10-20 lakh). Critical illness riders can add protection. Set aside an emergency fund (6-12 months’ expenses) to avoid dipping into retirement savings.
Special Considerations for Early Retirement
If you’re considering an early retirement plan , aim to retire by age 50 or 55. This goal requires an aggressive saving and investing strategy, as the earning period is shorter and the retirement period is longer. Use the 4% withdrawal rule as a guide.
You will have to save 25 times your annual expenses. For ₹6 lakh yearly expenses, you’d need a ₹1.5 crore fund to support you. Focus on high-return investments, such as equity mutual funds, early on, and create passive income streams (e.g., dividends or rental income) to support early retirement.
Conclusion
A career break doesn’t have to scare you into giving up on your retirement dreams. If you have a solid retirement plan, you can pull it off. Understand your financial needs, choose the right investment streams, and make consistent investments. As a woman who has faced setbacks and bounced back from a break, you can do this with the help of your resilience and fighting spirit.
