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If you are thinking of retiring early, plan well and save with discipline . Pic: livemint.com
The trend towards early retirement from work is picking up momentum in India, particularly among urban white-collar workers. However, many are unaware that early retirement necessitates accumulating enough savings to pull on for decades, demanding considerable financial discipline and sacrifices, particularly for those early in their careers. Medical expenses can significantly deplete retirement savings. Early retirees should anticipate these costs and plan accordingly.
Some of the factors that drive the early retirement movement are:
Financial planning awareness is on the rise as individuals gain a deeper understanding of personal finance, emphasising the significance of saving and investing for future financial security. This knowledge empowers people to seize control of their financial futures, potentially paving the way for early retirement.
Investment opportunities have expanded significantly in today’s financial landscape, offering a diverse array of options than before. This diversity enables individuals to build portfolios that are more diversified, potentially accelerating wealth accumulation and facilitating an early retirement lifestyle.
There is an increasing focus on achieving a better work-life balance and pursuing personal interests. Early retirement enables individuals to prioritise these aspects and explore alternatives to traditional career trajectories.
Be realistic about income
It is crucial to approach early retirement with realism and careful strategic planning. Several important factors should be taken into account.
Consistency: Achieving early retirement demands disciplined savings and strategic investments. There are no quick fixes, but with commitment, you can establish a robust financial base for the future.
Thoughtful planning: Before pursuing early retirement, thoroughly assess your financial situation, encompassing income, expenses, debts, and potential retirement income sources. Tailor your savings and investment approaches accordingly to align with your specific retirement objectives.
Preparing for an early retirement is like preparing for a marathon; you cannot just wake up and try to run 26 miles.It requires persistence, hard work, and thoughtful action.
Financial independence
Achieving financial independence is the first step toward an early retirement. This means having the means to meet your living expenses without depending on a conventional job. This empowers you to decide freely when, or even if, you wish to retire.
A common goal of early retirees is to maintain their standard of living through passive income sources like royalties, investment profits, or rental properties. This offers a reliable source of income without requiring any work on your part.
Necessary steps for early retirement
Although it may seem desirable to retire early, it is important to carefully consider your options before taking this decision. Consider the following actions:
Have a retirement budget in place: Establish a retirement budget; this will serve as the basis for your early retirement plan. It ought to consider your desired way of living, prospective sources of income (like a pension, or a part-time work option), and anticipated costs. Thankfully, there are numerous retirement calculators online to help you calculate the desired corpus. You can use these tools to figure out how much you need to save to reach your retirement income goals. Realism is also a prerequisite. Consider your ideal way of life and your spending habits. Don’t overestimate your sources of income or underestimate your expenses.
Exploring multiple income streams: Even though you should have a sizeable savings account, retiring early usually means reducing your standard of living. Look into ways to generate additional income in retirement to supplement your income and preserve your desired standard of living. Retirement income generation can come from a variety of sources, so you should be willing to explore options like consulting, part-time work, and passive income sources.
Check your investment options: Keep track of your current investments. Consider mutual funds, particularly equity funds favoured by early retirees, for their potential high returns over the long term. Direct stock investments can also yield substantial returns, provided you have the expertise and risk tolerance. Diversify your stock holdings across various sectors to mitigate risk, avoiding over-concentration in a few companies.
Consider exploring stable and secure investment avenues as well. The Public Provident Fund, Employees’ Provident Fund (EPF), fixed deposits (FDs), recurring deposits (RDs), senior citizens’ savings schemes (SCSS), and post office deposits are reliable and tax-efficient choices. They provide compounded interest and are government-backed, ensuring they are low-risk investments. The EPF can be especially advantageous if you have been contributing to it throughout your employment tenure.
The National Pension Scheme (NPS) is a government-supported retirement plan that enables investment in equities, corporate bonds, and government securities. It provides tax advantages and ensures a reliable pension income post-retirement.
Minimise your debt burden: Ideally, you should aim to be free of debt, or close to it, before moving into early retirement. Continuing debt payments can put considerable strain on your retirement finances. Focus on settling high-interest debts such as credit cards and personal loans promptly, as they can rapidly deplete your savings. Develop a structured debt repayment strategy before retirement, which might entail increasing monthly payments, exploring debt consolidation solutions, or seeking ways to augment your income.
Cost of living matters: Consider your location carefully, decide where you want to reside during retirement, as the cost of living can vary significantly based on location. The cost of living can vary greatly depending on your retirement location. Opting for areas with lower costs can significantly extend your retirement savings. Evaluate factors such as housing expenses, taxes, transportation options, and access to amenities. Determine whether you favour an urban setting with cultural activities or a tranquil rural environment. By thoughtfully selecting your location and its financial implications, you can find a place where you can enjoy early retirement comfortably.
Saving for health expenses: Health insurance is essential for early retirement. Stay mindful of unforeseen medical expenses. Even those in good health can encounter unexpected emergencies. Without adequate insurance coverage, these expenses can swiftly deplete your retirement funds. Additionally, having quality health insurance during your retirement years gives you peace of mind. You don’t have to worry about going bankrupt from medical bills during your golden years.
Expert advice helps: A financial advisor offers valuable assistance by crafting a personalised retirement plan tailored to your specific circumstances and goals. Most importantly, he or she can design a retirement plan customized to fit your income, savings, risk tolerance, and retirement objectives. Specialists can suggest an investment approach that blends growth opportunities with risk mitigation, aiming to assist you in building your retirement savings.
In addition, withdrawing funds early from retirement accounts may carry tax consequences, which a tax professional can clarify for you. Tax professionals can guide you on strategies to reduce your tax liability during both the saving and retirement stages.
Embarking on early retirement can be a remarkable opportunity, but it necessitates a strategic approach. By following these steps, you can enhance your prospects for a secure and rewarding early retirement. Diligent planning and disciplined actions contribute significantly to realizing early retirement goals.
By arrangement with livemint.com