Imagine bidding farewell to the daily grind and embracing retirement at the age of 45, giving you ample time to pursue your deepest passions and desires. While it may seem like a distant dream, early retirement is indeed achievable with careful financial planning and disciplined savings.
The sooner you embark on this journey, the closer you can get to realizing this dream. Whether you're in your 20s or 30s, it's never too early to start saving. Delaying this crucial step will only make early retirement more challenging to attain. Let's explore the key strategies to build your retirement corpus and enjoy a fulfilling retired life.
Determining Your Retirement Plan:
Calculating the exact amount of corpus required for retirement involves various factors, including monthly expenses, inflated value till retirement, one-time expenditures, life expectancy, inflation during retirement, and expected investment returns.
While working out these numbers may seem overwhelming, estimating a range can provide a solid starting point. Let us take an example:
Vishal Kumar, a 30-year-old millennial, works as a business development manager in an IT firm based in Bengaluru. Like many others in his generation, Vishal dreams of early retirement, despite facing unique challenges.
Millennials aiming for early retirement, such as Vishal, encounter two primary obstacles. Firstly, their investment horizon is relatively short, typically ranging from 15 to 20 years since they aim to retire by the age of 45-50.
Secondly, they often lack access to traditional wealth-building avenues like property ownership. Additionally, the burden of student loans, EMIs, and weak credit scores leaves them with limited savings and investment opportunities.
Vishal embarked on his professional career at the age of 27, following four years of engineering college and two years of management school. Despite earning a monthly salary of Rs 90,000, his financial obligations quickly eat away at his income. After deducting his education loan EMI (Rs 17,000), rent (Rs 12,000), travel expenses (Rs 10,000), and family support (Rs 15,000), Vishal is left with Rs 36,000 per month.
Considering his basic survival needs, he can only manage to save and invest Rs 10,000. However, with a retirement target of maximum 50 years old, his investment horizon is limited to 20 years.
So, how can Vishal overcome his low savings and the constrained time frame to build his retirement nest egg? He must carefully outline his retirement goals, including the desired monthly pension, envisioned lifestyle, future family plans, and travel aspirations.
Vishal is committed to saving at least Rs 10,000 per month, and as his salary increases, his savings will also grow. However, he must adhere to the lower ceiling of Rs 10,000 to stay on track with his retirement plan.
Investing smart and maximising returns
With the average life expectancy in India increasing, it is no longer practical to work indefinitely. Many Indians are choosing to retire early due to health concerns or personal circumstances. In light of this, it is crucial to select investment instruments that provide substantial returns over time and can outpace inflation.
To maximize returns within a relatively short investment horizon, Vishal has a wide range of options to consider. He can opt to directly invest in the stock market or choose a diversified instrument such as a mutual fund (MF).
Given the 15-20-year time frame, Vishal should maintain a balanced asset allocation that includes a certain percentage of equity investments. The equity markets have shown significant growth, with the Nifty50, the benchmark Indian stock market index, registering a compound annual growth rate (CAGR) of 11.2% from 2013 to 2022, second only to the S&P 500, the benchmark for US equities.
However, it is also important for Vishal to allocate a portion of his investments to debt instruments, including government and corporate debt. He may also consider government-sponsored schemes like the National Pension System (NPS), which offers various options, including the 'E' variety that allows for up to 75% equity participation.
To estimate potential returns within specific time frames, using tools like the Paisainfo SIP calculator can be helpful. The Paisainfo SIP calculator can provide an estimation of the expected returns over 1, 2, or 5 years based on the Mutual Funds CAGR. This not only assists in gauging the return on investment but also aids in planning the investment horizon effectively.
Using the Paisainfo SIP calculator can enable you to estimate a sum that you would expect in the next 1,2- or 5-year time frame, based on the mutual funds CAGR. This will not only help you have a rough estimate on your return on investment but will also help you plan your investment horizon.
Consult a Financial Advisor:
While retiring early is possible with aggressive saving, it's essential to consult a financial advisor. They can provide a comprehensive overview, considering other liabilities such as your child's education expenses. A personalized financial plan will help you navigate the complexities of building a retirement corpus while ensuring a comfortable and secure future.
Retiring early is not just a pipe dream—it can become your reality with strategic planning and unwavering dedication.
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