How early do you want to renounce the corporate race, reduce your work tensions, and have more time to pursue what you like the most? Everyone dreams of it, right?
Early retirement has its own perks. You get to spend more time with your family, travel more or even start your own business. Although retiring early seems like just an imaginary dream, it is quite possible if you plan intelligently. Let us discuss below some tips to make it possible:
1) Compute your financial needs
Calculate the amount of money you will need during your retirement. Arrive at these two essential parameters:
- The annual amount of income which you need after you retire
- The size of the retirement corpus required to generate that income
Plan to retire on an income which is 80% of the pre-retirement income. Also, take into account your future plans, wherein the actual number could vary. Once know the income figure, you can then calculate the size of the corpus necessary.
2) Cut Household Expenses
Cutting down expenses by making short and long-term sacrifices will benefit in several ways:
- It adapts you to spend less; this habit will come handy during your retirement life when your earnings reduce
- It frees up more money to pay debt
- It increases your savings
Stop using and spending unnecessary services. You can start by cutting down frequent dining outside, expensive entertainment plans every weekend, and services or subscriptions you hardly use.
3) Eliminate Debt
Payments toward debt reduce your cash flow and weaken one of your most powerful wealth-building tools: income. Debt reduces the amount of money available to save and invest for retirement. The earlier you start paying your existing debt, the sooner that money can be redirected to retirement savings.
So, as a first step, pay off the credit card debt if any. Start making a list of all debts, and prioritise paying off the highest-rate debt first.
4) Invest in Guaranteed Income Streams
Retirees who receive guaranteed income in retirement tend to be happier than those whose income is vulnerable to stock market fluctuations. Annuity plans are one way to get guaranteed retirement income.
An annuity is essentially an insurance contract with a financial institution, where you pay a lump sum or a series of payments in exchange for a promise to pay you a regular income. There are two types, immediate annuity where can start receiving payments right away and a deferred annuity where the payments can be received at some point later.
5) Increase your investments with the increase in your income
Understand this example:
At the age of 30, if an individual’s monthly salary is 50,000 and he is saving 10% (5,000) for his retirement every month in an investment option that earns 9% per year, he will accumulate 92 lakhs by the time he is 60 years old.
Assume that his salary increases by 10% every year. With increasing salary, if he increases his investments too, he would have a retirement corpus of 2.76 crores.
But in another scenario, if he does not increase his investment every year and waits five years to raise his salary by 50%, he will have a retirement corpus of 1.93 crores only.
Thus, having understood the importance of increasing your investments with an increase in your salary, make sure that you do sound research on your investments first. Whenever you get a raise, allocate half of it to savings.
6) Investment in Good Health Care
Healthcare costs are rising day by day. Your health can become a major concern for post-retirement life. So, it is vital that you make adequate arrangements in order to meet any eventuality. One way out is to have best health insurance coverage for your entire family.
Health insurance costs less if you take it at a when you are young as compared to taking it at a higher age. Also, taking the best Mediclaim policy for a family at an early age is beneficial financially too.
Longer lifespans and rising costs are two big reasons retiree health-care costs are expected to skyrocket. So, a smart way to save cost it to buy the best health insurance now, to lead a happy retirement life.
Because of their flexibility, portability and tax advantages, you should be indeed focusing more on best health insurance from the best health insurance companies in India as an early retirement planning tool.
Some Final Words…
Decide at what age you want to retire from your full-time job, based on your plan start with your wealth creation activities. Analyze your expected monthly expenses post-retirement and relatively execute your plans to save up that much money
Your retirement plan should include foreclosing any pending loans before retirement. Also, do special planning for high-inflationary expenses such as medical with the help of best health insurance plans in place.
If you feel that the return on your investments will not be sufficient, plan for a part-time backup job or any alternative investment instruments.
So, plan your early retirement and retire peacefully to enjoy little things in life!