If you are in your 30s, 40s or 50s, the idea of retiring early must have crossed your mind. But you may have shrugged it off considering it to be a fantastic yet difficult proposition. Your apprehensions about early retirement can be dealt with if you start planning for it and create financial strategies. Financial planning is the key to early retirement. Besides this, it also demands absolute discipline, patience, clarity and continuous focus on fulfilling your various financial goals such as buying a house.
Perhaps your transition to retirement should start the moment you decide you want to opt out of a 9-to-5 life. With this decision, you should start working on plans to sustain yourself through retirement. To help you through this, here is a quick guide to retiring early.
For an early exit from a job, 15-20 years of disciplined saving and investing is a decent enough period. If you have hit the age of 30, you are in quite a comfortable zone to plan an early retirement. But the longer the delay, the tougher it could be to meet your goal of early retirement. So, start early.
Save & Invest More
Normally, it’s advised to save at least 20% of your take-home income. But if your goal is to retire early, aim to exceed 33%. The more you save, the better for you. Smart budgeting is vital. Keep a check on your expenses and cut them ruthlessly. It’s important to not just save but also invest aggressively for higher, inflation-beating returns. Divert your savings to investments and don’t let them sit idle in your bank account as deposits.
Invest In The Markets
Investing for assured returns will not get you too far when the goal is retire early. You need an aggressive investment plan which provides you the high rate of return required to grow your wealth. Therefore, you need to invest in the securities market for higher returns. Equity investment is one of the best ways to go about it. You need to ensure a large part of your savings are diverted to market-linked investments such as equities. Given 15-20 years, you may the handsome returns which you need to retire early. You can choose top-rated equity mutual funds with a proven track record. If you understand the stock markets, you could make direct equity investments in stocks with a good mix of large-cap as well mid and small-cap scrips in your portfolio. You may take the help of a good financial advisor for the same. Do not forget to revisit your investments to know if they is line with the fluctuations in the market and average inflation rate.
Keep Increasing Your Investment
With every passing year, as your salary increases, keep raising the investment amount in equity-linked funds by 5-10 per cent or more as per your financial convenience. Remember, the compounding impact of the increased investment will be immense in years to come.
Take Crucial Insurance Decisions In Your 30s
In your 30s, it’s worth looking for a good family health insurance plan, covering you, your spouse, and children. Start with a coverage of at least Rs. 10 lakh if you live in urban areas. Buy this coverage before any health issue hits you or your spouse. This is the ideal stage of your life to secure the coverage. Buying at a young age will help keep your premium low, which will help you when you retire. Do remember that retiring from work also means losing the related benefits. Working individuals are usually covered through a group health insurance policy by their employer. A health insurance policy will ensure that any health-related big expenditure will not dent your pocket once you quit the job
At this stage, you may also consider buying a term insurance plan for the financial safety of your dependants. Choose a longer-term plan of 35-40 years which will give you an insurance cover till you turn 75 years of age. Ensure adequate coverage – ordinarily, it needs to be 10-20 times your current annual income. A term plan will keep you stress-free about the financial well-being of your family in case of your untimely demise.
Pay Off Your Existing Debts
It’s prudent to not carry any liability to your retirement years. You should ensure there is no debt payment left on you such as home loan repayment, car loan repayment or any other kind of borrowing. All must meet closure before you call it a day. So when you plan your retirement, also work on a monetary strategy that helps you pay off your existing debts. While doing so, high-interest debts first should be your priority followed by low-interest debts.
Retiring early is about attaining financial independence. The premise for early retirement is based on saving and investing aggressively to retire from a regular job and pursue your passion later. So once you decide to retire, you must have the vision to amass enough money to sustain your life post-retirement. There is never a one size fits all plan for early retirement. So work on a plan that will work for you. Also, try to build an emergency fund to face the unpredictable financial challenges ahead.
The writer is CEO, BankBazaar.com, an online marketplace for loans, credit cards and more.