If given the opportunity, most people would like to retire early and live the life they want. But most people have a vague understanding of “early retirement”.
The best way to retire early is to understand each aspect of it. In this article, we will walk through everything you need to know about retirement planning, early retirement strategies, and more.
What Is Early Retirement?
To retire means to relinquish your 9-5 job permanently. The typical age of retirement in India is 60. However, early retirement, as the name implies, means that you’ll retire before the age of 60.
Why Retire Early?
Early retirement has several benefits. For starters, retiring early can help you pursue your dreams, travel the world or live a stress-free life. The right early retirement strategies can help you to spend more time with your family and friends.
Apart from these, retiring early can help you lead a slow, steady and manageable life with opportunities to pursue a new hobby or start your own business.
When To Start Planning Your Retirement?
You’ll be happy to know that there’s no such thing as the best age to retire early. The goal is to retire merrily before 60 so you can start as early as 30 or as late as 50.
But your early retirement age would be defined by a combination of extensive savings, stable passive income and a clear vision of financial goals pre and post early retirement.
Apart from these, great health insurance is a must for early retirement and is often overlooked. But we’ll talk about this in detail later.
How To Retire Early? (10 step guide)
Step 1. Define your “early retirement” age
It’s important to know what early retirement means to you. Does it mean retiring at 30, 40 or 50? Introspect and discuss this with people you trust and rely on.
Deciding the early retirement age can help you plan your retirement budget, figure out the kind of life you want to live post-retirement, and other important things.
Step 2. Picture your lifestyle after retirement
Once you have a clear picture of your early retirement age, the next step is to zero in on the kind of retirement lifestyle you want to have. Some might argue that step 2 is even more important than step 1.
Your post-retirement lifestyle would dictate the amount of money you need to save while working and the insurance cover that you might have to get for pre and post-retirement.
For example, some people might want to zip-line across mountains in Costa Rica or settle in a foreign country. These are expensive lifestyle choices so your investments and savings should be able to support it.
Step 3. Create an early retirement budget
Expensive or not, regardless of the kind of post-retirement lifestyle you have in mind, you need to create a budget. This budget must cover:
Your budget may have to factor in expenses like school fees, college tuition, or others based on your liabilities and responsibilities. But overall, a budget can help you determine where you are, where you want to be, and how to get to your destination.
Widely accepted thumb rules like the 50/30/20 rule can help you create a practical budget and the 15*15*15 rule for mutual funds can help you generate lucrative returns for post-retirement life.
Step 4. Make a post-retirement budget
A post-retirement budget is necessary to give you an idea of the kind of expenses that you can expect once you wave goodbye to your job.
Depending on your lifestyle, a post-retirement budget could include:
Debt repayment (if any)
However, these are just a few examples of what you can expect. Your budget must be malleable and open to change based on better or worse scenarios.
Step 5. Invest based on early retirement goals
Saving money from your salary alone may not be enough to help you retire early. So you could say that the most important aspects of achieving early retirement, goal-based investing.
Let’s see why this is the case through an example. Assume Mr. Bank and Mr. Cube both earn ₹100,000 a month.
Mr. Bank invests 20% of his monthly income in a savings bank account. Mr. Cube invests 15% of his monthly income in assets like mutual funds and puts the other 5% in a savings bank account.
Savings Bank A/c Returns (3%)
Savings Bank A/c Returns (3%)
MF Returns (12%)
If you’re young and want F.I.R.E, you can take more risks. You can choose to allocate 70% of your portfolio to stocks and other high-risk investments.
As you age and accumulate more responsibilities or liabilities, you can rebalance your portfolio to safer options. But sound financial planning and advice are crucial to investing in the right assets for early retirement.
Step 6. Invest in passive income-generating assets
Generating passive income is built on the idea of making your money work for you while you relax. That’s the goal of early retirement as well - for you to relax with sufficient money in your bank a/c.
Passive income can act as a salary that may be useful to manage expenses post-retirement. Since both passive income and early retirement go hand in hand, it is important to choose the right investment options.
Passive income-generating assets for early retirement include:
Step 5 shows the importance of generating enough returns. But investing in passive income-generating assets may further solidify your goal of early retirement.
Step 7. Get health insurance
Your health is the biggest asset you can invest in. If you want to retire early, you need more than sufficient insurance cover.
Remember that once you’re out of a job, your employer won’t be covering your health insurance costs. More importantly, do not treat health insurance as a purely tax saving investment.
Step 8. Reduce or eliminate bad debt
A good tip to retire early would be to live within your means. Reduce your debt or even eliminate it before you retire. Do not borrow from your future self. Instead, invest in assets that can help you in the future.
In most cases, you can’t retire early with peace of mind if you have looming debt and loans to look forward to. A new car or phone does not add to your net worth. But a wise stock investment does.
Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones - Benjamin Franklin
Step 9. Revisit your investment portfolio
Assessing your investment portfolio can help you reorient and re-organize according to your age, goals, or financial health.
It can also help you track whether you’re close to reaching the desired amount for early retirement.
You can get a free portfolio check on the internet. Cube, for example, gives you 1 free MF analysis report. You can check it out here.
Step 10. Speak to a wealth coach
Before you invest in any asset, it is important to understand your investment goals, risk profile, current financial situation, and more. Doing all of this would be difficult if you’re a busy professional driven towards achieving early retirement.
A wealth coach would be the best person to help you with all of the factors mentioned above. Cube’s wealth coaches help you invest in options that work for you. No hard-selling. No smooth-talking.
These 10 tips can serve as a primer for you to embark on your early retirement journey. However, you must consult a professional wealth coach and evaluate all options before retiring early.
Watch this video to know about the best ways to invest money
1. What are the best early retirement investments?
Ans. Investments that can help you retire early must generate passive income, lucrative long term returns, or both. These include:
2. How much to save for early retirement in India?
Ans. Experts suggest that you must have 5-10 years worth of annual income saved up for early retirement. Along with this, you must invest in passive income generating assets for consistent post-retirement income.
3. What is the F.I.R.E movement?
Ans. F.I.R.E is short for Financial Independence Retire Early. The aim is to save 50-70% of your income and invest aggressively in a diverse set of assets to retire before your 30s or 40s.
Shriram is a Consultant at CubeWealth. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. His love for philosophy, developing products, and empowering people through quality content is what got him to CubeWealth.
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