Published on January 21, 2020
Retiring early is something everyone dreams of but is a feat only a few manage to achieve. Some outliers are successful in filling up their piggy bank so extravagantly that they are ready to hang up the boots in their 40s, and some even in their 30s! So how do they do it?
Plan early
The key to early retirement is to have a conventional investment strategy. Early retirement will not just be your dream now; there is a possibility that it can turn into reality in the near future. All you need to do is to have a foolproof investment strategy. But charting out an investment strategy that meets with your financial objective is also necessary. Retirement planning is different for each person. There are a lot of facets to consider such as income needs, an alternative source of income, family health history etc. Planning right for your retirement is an important long-term goal as it will allow you to make the most of it and help you fulfil your dreams.
Why retirement planning is important
Early retirement has its own advantages. You have all the time to focus on yourself and might also be able to do all the things which you couldn’t with your nine to five job. But to retire early, you need to have a defined retirement plan. Having a defined goal shall help you with effective retirement planning. You are bound to need more money after you retire than you need now. Also, post retirement you will mostly have few income sources, like pension and thus, the chances of you living on a restricted budget are high. Thus, it is necessary to plan your retirement smartly considering you are planning to retire early than the typical age of retirement.
Essential strategies for retirement planning
Although it is true that each individual will have a unique investment strategy catering to his/her needs, one thing is common for sure; you need to know how to make your savings last. Here are five essential strategies for investment planning:
1. Be realistic with the corpus you want to achieve: If you do not know how much cash flow you’ll be needing annually post retirement, building a decent retirement corpus can become difficult. This first step towards retirement planning is being realistic about your budget. You corpus should be able to sustain you at least 20 to 30 years beyond your retirement age. If you want to find out how much you’ll need annually so you can spend without worrying, you need to keep certain factors in mind including your life expectancy, how you’ve saved so far, and how much do you spend on an average. Creating a reasonable retirement budget is essential because it allows you to target investments which can potentially help you get there.
2. Try and control your basic cost of living: This is a simple formula that can do wonders for those seeking early retirement. Basically, the lesser money you need to survive daily, the more you will be able to save and invest. Having a larger sum for investment means that you are increasing your chances of potentially growing your wealth by having more money to invest at a young age. Keep your basic living cost to a minimum and invest all the money you save. It can’t get simpler or more effective than this when it comes to retirement planning.
3. Learn how to tackle your biggest enemy – inflation: In the investing world, inflation is considered as an ‘insidious cancer’, especially for early retirees. Inflation has the clout to snatch away your purchasing power and can destroy you if you fail to invest strategically. Early retirees should not take inflation lightly as it can hinder their plans of retiring early. The current inflation rate in India is growing at a meagre 3.5 per cent. Still, if you consider 20 to 30 years from now, there’s a possibility that your projected corpus ends up being insufficient for your post retirement life. Always keep the inflation rate in mind while planning an early retirement strategy.
4. If you have any debts, clear them before retirement: The key to leading a stress free post retirement life is to make sure you do not have any burden of debt on your shoulders. If you have an easy mindset towards debt, chances of you carrying some with you in your retirement are high. And this is not a good sign because the last thing you want to do while living on a fixed income is to have a debt ridden retirement life.
5. Save as much as you can, it’s never going for waste: If you are planning to retire as early as 40 years of age, you need to save at least 30 to 40 per cent of your monthly income. If you want to retire early, you definitely need to up your savings game. The more you save now, the higher your chances are of becoming financially stable. Remember that if you retired at the age of 60, you would need a corpus that can last you for the next 25 to 30 years. But if you plan to retire early, you will have to accumulate a corpus that can last you for more than 50 years.
We hope that these simple yet effective strategies come in handy when you decide to pick a viable investment scheme. Investing in solution oriented retirement schemes might help you build a commendable retirement corpus and might even allow you to retire early.