Why is there a gender gap in pay?
Actually it is hard to justify, but it exists in India as well as in other countries. To a large extent it is a question of employer’s preferences. Women are required to take time off for their family and any long term association has gaps. There is also an old-boys club which has tried to perpetuate the assumption that the gap should exist. But the bigger problem is the gap that is now emerging.
COVID-19 has accentuated these gaps and here is why. More women have lost their jobs due to COVID and that is true even in sectors like IT. COVID has taken its toll on women’s physical, psychological and financial health and would impact their bargaining power. Above all, when the jobs return, there is likely to be a sense of desperation that would further accentuate the gender pay gap.
What is the smart thing women can do to address this gap?
It is one thing to protest about the gender gap. A smarter thing is to save more and invest wisely. For example, we all know about how equities can generate higher risk-adjusted returns over the long run. But what stocks to buy. Everyone knows the story of how a small investment in Wipro, Havells, Infosys or Eicher would have created millions. But that is hardly going to help. Stocks are too uncertain and for a lady looking to fill the gender gap, there are no second chances. A better option is to go for equity funds.
How Sanghamitra Sahu worked wonders with disciplined investing?
For Sanghamitra Sahu, COVID-19 came as a double whammy. Her husband succumbed to the pandemic and at the age of 40, she suddenly found herself with a 10-year daughter to take care of. Fortunately, she had a job and although her company had asked her to take a 20% pay cut, she was earning well. Her male colleagues who were earning much higher also took just a 20% cut, but this was hardly the time to worry about such issues. It was time to fill up the gap with smart investments. And Sanghamitra opted for equity funds, which had given 13-15% IRR consistently over 10 year periods. She did not have worry about her home since her husband had taken a term policy against the loan outstanding. The big challenge before her was to meet their regular expenses, plan for her daughter’s career and also secure her own future.
How the numbers stacked up for Sanghamitra?
Here is how her overall balance sheet looked like.
|Monthly Income||Rs75,000||Equity Fund SIP||Rs10,000 per month|
|Monthly expenses||Rs40,000||SIP Step up||5% annually|
|FD for daughter||Rs20,000||Current Age||40 years|
|Emergency Fund||Rs5,000||Retirement Age||60 years|
|Saving Potential||Rs10,000||Plan Income till||Age of 80|
Sanghamitra can squeeze Rs10,000 savings per month after meeting her expenses, planning for her daughter’s education and setting aside an emergency fund. She is 40 years old and her daughter is 10. If she looks to retire by 60, her daughter will be 30 and settled. Sanghamitra’s calculation is that the FD would take care of her daughter’s education and whatever corpus she has saved at 60 can be her retirement fund. The best thing for her would be a step-up SIP. How will her finances look at the time of her retirement?
|Monthly SIP with 5% annual step up||Rs10,000||Total Amount Invested||Rs39.68lac|
|Tenure of SIP||20 Years||Value of SIP after 20 Years||Rs1.43cr|
|Annual Yield on SIP||13%||Wealth Ratio||3.60 times|
Sanghamitra would have played it really smart and end up with a corpus of Rs1.43cr when she retires at 60. By then her daughter would be settled and her big challenge would be to use this corpus of Rs.1.43 crore to effectively create income flows till the age of 80 years.
How to create annuity stream till the age of 80?
|Fixed Lump-sum||Amount||Monthly SWP||Amount|
|Corpus at 60||Rs1.43cr||Monthly Withdrawal||Rs110,000|
|Invested in||Debt + Liquid||Tenure||20 years|
|Annual CAGR yield||7%||SWP ends at age||80 years|
With a corpus of Rs1.43cr at the age of 60, Sanghamitra can pay herself Rs.110,000 per month for another 20 years till the age of 80. Her financial advisor tells her that the amount would comfortably see through her expenses without any hassles, along with a health insurance plan thrown in.
Sanghamitra has surely used the crisis to neutralize the gender gap by focusing more on discipline and growing her money. At the end of the day, how much you save and how long you save matters more than how much you earn. Twenty years down the line, would Sanghamitra be financially better off than her better paid male counterparts? That may be the subject for another discussion, but you can jolly well bet on that!