Planning an early retirement

We have always been saving/investing for our future goals. Investors regularly squirrel out money from their limited incomes for their big future objectives, for their house, first car, kids’ education, weddings, medical needs, emergencies, retirement, etc. However, people’s needs and preferences are changing and hence the goals have evolved. Buying the first car has overtaken the first house in many investors’ priority lists. Little luxuries like watches, purses, frequent vacations, dining in top hotels, etc., have found love for them among Indian consumers. A lot of young students as well as professionals are also inclined to pursue their passions like trekking, yoga, learning foreign languages, etc.

Another change that is increasingly being witnessed among millennials is the desire to retire early. The retirement target age for many has remarkably gone down from 60 to 50, some even want to retire as early as 45 or 40. While it’s a good idea to retire early and pursue your passions and travel the world, while you are relatively young and healthy, can you afford it?

Financially, retiring a decade earlier means 10 fewer years of regular income, translating into 10 fewer years of saving for retirement, and 10 extra years of only outflow. At the age of 35, with not much saving and investment, no proceeds from the inherited property coming your way, not many valuable assets, thinking to retire in the next 10 years may not make much sense. But is it possible? We would say only if the required time and planning are in place.

Before one retires, he/she must have provided for the following:

• Discharged major financial obligations, like having a home, having kids’ education and marriage expenses covered, etc.
• Have adequate insurance in place to take care of any uncertainties.
•  No outstanding loans or debt.
• Adequate retirement corpus to support you for a long duration.
• Early retirement may sound challenging, but achievable if approached right. Here are some points which can help you accomplish the above, and let you dream of early retirement.
  
  

2. Start investing for your Retirement as soon as you start earning. Take up the last goal first, and start saving and investing for your Retirement from the day you start earning, the sooner you start, you are simply buying yourself time for being better equipped for D-Day. You can start with a small SIP and increase gradually as you age and your income increases. While starting soon is important and will give you an edge, it’s not the end, the journey is demanding.

A blend of the following practiced over your working life should help you save enough for your goal:

-> Spend wisely
-> Save aggressively
-> Invest generously

3. Choose the right asset class. Apart from disciplined investing, one thing that can make a lot of difference and contribute immensely to your retirement kitty is the return on your investment. An 8% RD versus an Equity SIP with an average return of 12%, of R 10,000 per month will fetch you R 91.5 lacs and R 1.7 Crore respectively, in 25 years. A difference of just 4% in return almost doubled the corpus over the same period. You have a huge investment horizon in hand, complemented by the ability to take the risks because of the time, invest in products with good growth potential and make the most of compounding.

4. Ensure a debt-free life at the earliest. A prerequisite to retiring early is being Debt Free. So, start paying off your loans, start with high-cost debt like credit cards and personal loans, and gradually move to the car and home loans. Also, about loans, don’t unnecessarily burden yourself with them. When you have prioritized your needs, and an early retirement occupies the top position, let’s strive to achieve it, don’t go for a 3 Bhk house when a 2 Bhk meets your requirements. Or why go for an expensive SUV for a nuclear family, when a mid-segment hatchback or sedan does the job?

5. You can still make money after retirement. Fortunately, for many who wish to retire early, retirement doesn’t mean putting a full stop to earning. Many would be planning to work freelance, as consultants, and trainers, or run things like blogs, Youtube channels, etc. These things can be clubbed with a retired life long with pursuing your passions. Many would also like to build a secondary income source, say rent from additional property, the share of profits from some business as a passive investor, and so on. These things would likely bring in some cash flow which can be great for your retirement plans. The point is to be well-planned and prepared before taking the plunge.

6. Invest your retirement corpus wisely. Investment management is a never-ending process and it will continue even after your retirement. Your retirement corpus should provide you with regular income, if needed, to meet your routine expenses. There are various asset class options like real estate, fixed interest-bearing instruments, small saving schemes, etc., which can give you a regular income. However, the investing factors like risk appetite, income needs, liquidity needs, longevity needs, etc. Thus, debt mutual funds and balanced funds with SWP (Systematic Withdrawal Plan) option, can be looked at for your post-retirement investment planning. While a debt fund will give steady, relatively risk-free returns, a balanced fund will also allow making the corpus to grow and thus last longer, albeit with a bit more risk.