Many young professionals today are working hard towards the goal of financial independence and retiring early (or FIRE). This is a growing new concept. Rather than working until age 58 or 60, which is the official retirement age at most companies, the main idea of FIRE is that you save and invest to build enough funds to live off your paycheck.
FIRE is a new concept in India and is not easy to implement. Let's look at some ways to achieve this goal of early retirement
Start early
Start walking towards this goal with discipline at an early stage; Give your money enough time to build wealth and harness the power of compounding consistently.
Factor in inflation, lifestyle and health costs
To arrive at what the corpus should be for early retirement, you need to consider different factors like inflation, health care, cost of higher or foreign education for children, marriage expenses of children, maintaining the current lifestyle of the family and annual planning. Vacations, life expectancy calculations and retirement corpus retirement age should be considered.
“There will be other factors that may come in as recurring costs. For example, house renovation, new car etc. These recurring expenses need to be factored in when thinking about your retirement corpus,” says Vishal Dhawan, founder and CEO, Plan Ahead Wealth Advisors.
Steps to Build an Early Retirement Corpus
Create an Excel template and list actual expenses. This includes the cost of house rent, medicines, insurance premium, monthly groceries, utility bills, entertainment, income taxes, etc. ” says Dhawan. Next, figure out which of these expenses will increase or decrease when you retire.
Invest in the right equipment
An investment made only for a retirement corpus can be in equity for a long period of time to reach the target corpus. The equity component of the portfolio should be strong because of longevity,” says Kalpesh Usher, founder, Full Circle Financial Planners and Advisors.
"Don't take unnecessary risks, if you lose by investing in speculative investments, cryptocurrencies or foreign investments, you will not be financially independent," says author and financial advisor Rishi Piparaiah. Set aside the retirement corpus and don't gamble with it in the post-retirement equity market, he adds.
"You need to plan the portfolio strategy both pre-retirement and post-retirement," says Dhawan. If you run a conservative strategy during these two phases, you may need a larger corpus in retirement to cover your living expenses, he adds.
Assuming actual annual expenses, future goals and life expectancy of 80-85 years, assume you want to retire at age 50 and the required corpus is Rs 5 crore. So, if you start saving at the age of 30, the monthly investment will be Rs 33,333 and if you start saving at the age of 35, the monthly investment will more than double to Rs 73,750.
Keep up with your insurance plans
If you have someone who depends on your income, it is important to pursue a term plan. "It's not expensive and it's a good safety net to continue after retirement," says Piparaiah. If you expect to have outstanding loans after your retirement, you need to continue with term insurance to cover the liabilities.
Adequate separate health insurance for elderly dependent parents and a floater plan including your spouse and children are important, especially for anyone who is retired. “When calculating the retirement corpus, keep in mind the premiums to be paid for these insurance policies,” says Usher.
Pay off outstanding debt
“At post-retirement age, there are many expenses to take care of as there is no steady source of income. Therefore, one should settle all loans and liabilities before retirement as it becomes difficult for a person to pay an EMI from the corpus in the post-retirement age,” says Usher.
