Magic Potion For Early Retirement

If you ask working professionals, most of them will tell you that their common cubicle daydream is to retire early before age 60 or 50 and some would even say 40 years and the freedom. Lots of people would like an early escape from the daily grind, be it to pursue a passion, travel, start a new venture, or just stop working.

Whatever the case, wondering how to retire early? Here is everything you need to take into account for early retirement and some tips and tricks to make it happen successfully.

What is early retirement?

The idea of early retirement is to enjoy your days doing what you always wanted to do, starting a new life, or living the life you always wanted to.

The standard age of retirement in India is 60. Most people who go after early retirement thinks about retiring in their 40s, 50s, or even earlier.

They want to retire and set aside time for projects that they are passionate about or simply not work. This is famously known as the FIRE movement, meaning, Financial Independence, Retire Early.

There are three kinds of FIRE devotees:

  1. The lean FIRE group.
  2. The fat FIRE group.
  3. The barista FIRE group.

Find your group:

The lean FIRE group with people retiring in their thirties or forties might seem like any professional`s dream come true. To achieve this, young workers should follow extreme saving regimes like saving 50% to 70% and investing aggressively in a wide variety of assets preferably risker assets like stocks.

The fat FIRE group followers focus on increasing earnings either through investments or side jobs so that they can retire early and live a comfortable lifestyle.

The barista FIRE group believes in working whenever there is a need or convenience for them. An example would be driving your car as a cabbie if you need an income. They also focus on saving enough and more before retirement.

Even if one can only save a small amount each month, such as Rs 1000 or Rs 2000, one can fairly achieve one ‘s financial goals. Furthermore, by stressing on savings, one can retire without drastically altering one’s lifestyle,”

By now you have a rough picture of what it takes for n early retirement. Now let’s get down to hard facts and tricks that will help you to plan an early retirement.

  1. Get your numbers right and have a plan.

Well, the very first question that pops into anyone’s mind is how much is an ideal amount to set aside for retirement. The first is the rule of 25 which says you should have at least 25 times your annual spending saved before you retire. That means that if you plan to spend 10 Lakh during your first year in retirement, you should have 2.5Cr invested when you walk away from your desk.

Incidentally, this is a good start to plan your budget accordingly. Your budget must be flexible and should have enough room for changes based on better or worse situations.

  1. Keep Growing.

The rule assumes you have not put all your egg in one basket and the basket you have put in will keep growing despite your increased spending due to inflation.

There is a second rule called the 4% rule under which you can withdraw 4% of your invested savings in the first year of retirement and in the following years you withdraw the amount adjusted for inflation.

Now you know the type of life and the approximate number you should have before you walk away from the desk.

  1. Create an early retirement budget.

Irrespective of the kind of post-retirement lifestyle you have in mind, you need to create a budget and this budget must cover:


Cut Back On Your Three Biggest Expenses

  1. Housing
  2. Transportation
  3. Food

In dual-income households, try living on one income and saving your partner`s income or vice-versa.

Always keep in mind that every few hundred you save today in any form could help you reach early retirement days, weeks, or even months sooner in the future.

  1. Speak to a wealth coach and get investment savvy.

Neither of these rules is foolproof. It is only prudent to find a financial advisor willing to guarantee good results. But they’re generally considered reasonable strategies.

Keep this point in mind for an easy way to retire with more. Avoid high management fees. According to an analysis, a 1 percent fee may not sound like much, but over 30 years it could shrink your portfolio by a lot more than you thought. Find a fund with a 0.5 percent fee, and you’ll be sending out invitations to your retirement party much sooner.

  1. Increase and Diversify Your Income Streams

Invest in passive income-generating assets.
Just like the goal of early retirement, the main aim of passive income is to generate ample income while you relax.
Passive income mimics salary that helps you manage spending post-retirement.

List of Passive income generating assets:

• P2P lending
• Rental properties
• Dividends from stocks
• Dividends from mutual funds
• Annuity plans

Best Early Retirement Investments

  1. Mutual funds
  2. Indian Stocks
  3. US stocks
  4. P2P lending
  5. Rental Property
  6. NPS
  7. Fixed Deposits
  8. Recurring Deposits
  9. Gold
  10. Annuity plans

At What Age Should a Person Be Debt-Free?

Some financial experts advise individuals to be debt free by the time they are 45. This age is realistic because it is the last half of a person’s career when they should stay away from debt obligations, other than their mortgage, and should start to increase saving for retirement.

Final Take: When Should You Retire?

That depends on the individual. The best retirement age is the one at which you can live comfortably, happily and enjoy the fruits of your hard work. No matter what, you need to have a plan that starts with saving away as much money as possible. You should retire when you feel like your future is safe and sorted and having health insurance, real estate, and financial stability is the bare minimum.

If you have a financial back up there is nothing like it. There is a way out for all ages so how to go about it

The Bottom Line

Who wouldn’t want to retire early? But not many have what it takes, like financial resources, planning skills, and discipline to do so.

Ironically, retiring early requires a lot of work, meticulous planning, and making the right investments. Starting early is the key as it helps you make changes mid-way should the need arise because the earliest that you can start receiving pension benefits or senior citizen benefits is at age 60.

To sum it up, keep the below points in mind:

• It takes thorough planning and discipline to retire early.
• Reduce your monthly expenses.
• Save more and invest more.
• Keep in touch with a qualified financial advisor who can help you manage your finances before and during retirement.
• Get health insurance
• Reduce or eliminate bad debt

Now that you have the magic portion, if you are ready, go ahead and put your papers and enjoy your early retirement.

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Yonita is the pillar of Client servicing at Moneyfront. She has worked with Citibank for over 25 years in operations and client servicing. In her stint with Citi, she has managed large service setups and her rich experience of banking spans across managing clients, operations, audits and compliance matters. She epitomises ‘client excellence’ in the true spirit of the word. Her motto and single-minded focus is to make sure every client is a happy client.