Everyone has their own aspiration for retirement. Some wish to achieve it after the age of 60, while some, with other aims, wish for an early retirement i.e., before the age of 55. But, how to retire early? Well, for early retirement, you need to manage your savings well and build an aggressive Financial plan. The earlier you start saving and accumulating wealth, the sooner you can aim for retirement!
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When planning for an early retirement, the first thing you need to figure out is—what is the desired corpus that you would require after you retire? This amount will depend on several factors such as your lifestyle, the kind of life you want to lead after retirement (luxurious/ simple life), how early you want to retire, etc.
Moreover, while estimating early retirement needs, you should know your current Net worth (NW), i.e., you need to figure out how much money you have right now. To calculate your Net worth, you need to add up all your Current Assets (CA) (real estate, equities, auto, gold, cash, stocks, any other investment) and then subtract with your outstanding debt (Current Liabilities) (credit cards outstanding, loan outstanding, mortgage payments).
Retirement calculator is one of the best ways to estimate how much money you will need to save for your retired life. Moreover, it also helps to create your early retirement plan. So, by using retirement calculator you could estimate the amount that you need to save monthly.
When you plan to retire early in life, you have less time to accumulate the desired wealth or to achieve your Financial goals. Which means that you will need to get into a habit of aggressive saving and Investing. Some important ideas on how to make a sustainable plan for your early retirement are below-
Building assets faster becomes relevant when planning for early retirement. Asset comes as a backbone not only at your early retirement, but also at all times of your life. While there are many traditional ways of building assets like various schemes, savings, fixed deposits, etc., people need to also understand the importance of other unconventional ways of building assets faster.
Assets basically are divided into types that are tangible, intangible and personal, which consists of a number of assets as shown in the below image.
|Cash on deposit||Blueprints||Jewelry|
|Cash on hand||Bonds||Investment accounts|
|Corporate bonds||Brands||Retirement account|
|Money market funds||Website||Personal characteristics|
|Savings Account||Trademark||Real Estate|
Building a right portfolio is an important part of early retirement. Also, for high returns, you need to opt for the right Asset Allocation across various asset classes. Salaried people should first sign-up for Employment Provident Fund (EPF). EPF is a retirement scheme wherein your employer deposits a certain amount every month in an EPF account and this is deducted from your monthly pay. This fund will add major benefits to your early retirement savings.
Having a diversified portfolio reduces the rate of incidence of risk significantly. At every stage, you should hold a diversified portfolio of assets with you. The portfolio typically should contain assets across classes, namely - stocks, fixed income instruments, cash assets and commodities (gold). At an early age, you should make a long-term Investment plan, with a mix of high-risk assets like equity and in lesser risk assets like cash, FDs, etc.
An equity fund is a type of Mutual Fund that invests mainly in stocks. Equity represents ownership in firms (publicly or privately traded) and the aim of the stock ownership is to participate in the growth of the business over a period of time. The wealth you invest in Equity Funds is regulated by SEBI and they frame policies & norms to ensure that the investor’s money is safe. As equities are ideal for long-term investments, it is a good early retirement investing option. Some of the Best equity funds to invest are:
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2017 (%) DSP BlackRock US Flexible Equity Fund Growth ₹23.3421
₹201 -10.5 -4.1 1.8 13.2 9.2 -1.1 ICICI Prudential Banking and Financial Services Fund Growth ₹61.34
₹2,595 13.3 5.2 -2.3 25.7 24 -0.4 Invesco India Growth Opportunities Fund Growth ₹32.39
₹969 4 -2 -2.4 15.4 16.4 -0.2 Kotak Standard Multicap Fund Growth ₹33.104
₹21,369 5.3 -0.8 -2.4 16.3 19 -0.9 Mirae Asset India Equity Fund Growth ₹47.959
₹9,697 4.6 2.2 -2.6 17.3 18.9 -0.6 Axis Focused 25 Fund Growth ₹25.74
₹6,455 1.7 -9.9 -4.4 17.1 16.3 0.6 Aditya Birla Sun Life Banking And Financial Services Fund Growth ₹26.85
₹1,561 8.8 -5.1 -5.6 22.3 22.7 -2.4 Kotak Equity Opportunities Fund Growth ₹112.668
₹2,345 6.7 -0.2 -6 15.1 16.9 -5.6 Tata India Tax Savings Fund Growth ₹16.9407
₹1,512 6.7 0.3 -8.2 14.7 -8.4 Sundaram Rural and Consumption Fund Growth ₹40.5851
₹2,431 6.9 -0.7 -8.5 18 19.4 -7.8 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 17 Jan 19
An investor can deposit a minimum of INR 500 per month or INR 6000 yearly, making it as one of the most convenient forms of investment for Indian citizens. Investors can consider NPS as a good idea for their early Retirement planning because there is no direct tax exemption during the time of withdrawal as the amount is tax-free as per Income Tax Act, 1961.
Most people consider the Fixed Deposit investment as a part of their early retirement investment option because it enables money to be deposited with banks for a fixed maturity period, ranging from 15 days to five years (& above) and it allows to earn a higher rate of interest than other conventional savings account. At the time of maturity, the investor receives a return which is equal to the principal and also the interest earned over the duration of the fixed deposit
Over the years, insurance has evolved as a strong backbone for people during their uncertain times in life. It has also reduced risks during the loss. So, while planning for early retirement, one should consider Life Insurance as an important element as it gives you and your family an income protection. Moreover, it provides financial support over uncertainties/risks, both in business and human life. There are different types of insurance policies like Property Insurance, life insurance, health insurance, accident insurance, Travel Insurance, liability insurance, etc. However, insurance doesn’t only support during uncertainties, but it is a very efficient mode of investment as well. It encourages saving money through schemes that come with a maturity date.
These are the retirement solution oriented schemes that will have a lock-in of five years or till the age of retirement.
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2017 (%) Tata Retirement Savings Fund - Conservative Growth ₹19.2668
₹129 3.6 0.9 0.6 9.5 10.4 0.8 Tata Retirement Savings Fund-Moderate Growth ₹28.7951
₹945 5.1 -3.4 -4.3 15.1 19.2 -3.6 Tata Retirement Savings Fund - Progressive Growth ₹27.6295
₹539 5.9 -5.1 -6.8 16.7 18.1 -6.1 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 18 Jan 19
Investors who will invest in Mutual Funds as part of their retirement savings are advised to take a SIP route. SIP’s start the process of wealth creation wherein a small amount of money is invested over regular intervals of time and this investment than being invested in the stock market generates returns over time. The amount to start a SIP is as low as INR 500, thus making SIP’s a great tool for smart investments, where one can start investing small amount from a very young age. Whether it’s buying a house, car, any asset, retirement planning or higher education planning. SIPs offer a very systematic way to save money and reach these goals.
Having a focused financial plan becomes very important when planning for early retirement. So, if you want to retire early in life, you already know your next step!