22 September 2020 | 5 min read

Planning For An Early Retirement? This Guide Has You Sorted


Slogging off till the age of 60-70 to build a nest for yourself that you would find little time to enjoy is a thing of the past. At least, the millennials and the new generation have adapted to the new world order. That is why they are dreaming of (and making it a reality) retiring before the age of 40. Early retirement might seem a bit of a stretch, but it’s happening, and a lot of people are doing it already.

From bloggers to influencers to entrepreneurs, people from all walks of life are looking to retire by 40. And if it sounds too preachy, keep reading to know how you can go about planning your finances in such a manner that you get to lead a financially independent life as early as 40 years.

Guide for Early Retirement

Plan your retirement

Ideally, early retirement in India is seen as a far-fetched dream. This mindset was the norm and something we were prepared for, given that our parents and our grandparents worked 9-to-5 till the age of 60 and then lived off a relatively normal and stress-free life on their savings and pension.

Today, we are looking at alternatives because job stress runs high, and there is an air of uncertainty in the corporate sector that employs most of the youth. Thus, early retirement is not a dream of just the travel bloggers and digital nomads but a regular working-class person.

Moreover, when you retire early, you have loads of time to relax, travel the world or open up a small business of yourself, which was always your dream but not in the pipeline because of family and other obligations. Add to this the lure of living a life of leisure, lounging at your home, reading your favourite books, cooking delicious meals and spending time with your family. All of this makes the idea of early retirement attractive and now, doable.

As you are already here and reading this article, we take it you are one of those who do have a vague notion of early retirement and want to put this idea into action so that you can retire by 40 and enjoy the fruits of your labour.

Once you have made up your mind about retiring early, you need an early retirement plan. Before you set out to make this, there are specific questions you have to ask yourself and accordingly structure out a plan that works best for you. Here are few tips to help you plan early retirement.

1. Understand what retirement means to you

Understand retirement meaning

If you are planning to retire early and spend your days in your home lounging in front of the TV and relaxing, you will, by definition, need a lesser amount in savings to withdraw by 40. However, if you plan to travel the world or pick up on a hobby of some kind or open a cafe or restaurant, the expenses will soar considerably, and so will your savings target for an early retirement plan.

Sit down and take stock of what you want to do once you leave your regular job and have all that time. Come up with a plan of how much you need and how to go about saving for retirement.

2. Stick to the FIRE strategy

FIRE Strategy

Once you have decided your retirement definition, there is a term that you will need to learn about religiously – FIRE (Financial Independence, Retire Early). This is a concept revolutionized in the West but is apt for everyone who plans to retire early.

Your entire plan of retiring early hinges on your financial independence. Thus, creating a financially secure future is something you need to do from the beginning of your career. With proper planning and sticking to your financial goals, the latter – early retirement would follow.

3. How much you need to save for early retirement

Once you know what retirement means to you, calculate how much do you exactly need after retirement. For instance, if you are earning INR 50,000 right now and this is enough to support your lifestyle, you can multiply this amount by 12 and add 10% inflation to it and you are set for a comfortable life once you retire. The amount might seem exponentially high given that you need to save INR 6,00,000 for 20 – 30 years’ worth of experience after retirement, but with the right investments and savings, it is achievable.

The end goal differs from person to person, depending on how much you plan to work after retirement. If you set up a business or start a blog and get some additional income from that, your target retirement corpus would decrease.

4. Get down to saving

Save for retirement

According to financial experts, early retirement plans are all about saving religiously. While the ideal thumb rule is 80-20, i.e., spend 80% and save 20%, when you start thinking about retiring by 40, you need to save at least 48% of your monthly income from reaching your goal the time you want to retire.

5. Restructure your investments if needed

The best way to save up money for your retirement is to invest in compounded-growth funds and vehicles. Mutual Funds with 80-20 equity to debt ratio are ideal for people who want to retire by 40. Not only do you have a long time to beat inflation, but you are also ready to take the risk and hit in case the market crashes.

All said and done, only go for funds that provide the risk you can bear. It is excellent if you don’t want to invest a single paisa in equity. Just don’t let the surplus money you have sit in your account.

6. Don’t inflate your lifestyle

Don’t inflate your lifestyle

Also known as the ‘lifestyle creep’, spending almost everything you earn monthly is the habit of spending almost everything you earn. In India, a lot of us tend to do this, and it is something we know as living from one payday to the next.

When you plan to retire early, this cannot be your ideal situation, and you have to learn to spend within your means. Cut down on unnecessary expenses and remember to save for that golden future full of sunshine, sand and hammocks (if you plan to travel to the beach).

Apart from this, when it comes to retiring by 40, picking up a vocation that can be practised from your home’s comfort is also a good idea and having a contingency fund in place will give you mental peace while you work and save.

7. Start Early

The best time to start saving for retirement would be as soon as you start earning. This is because the earlier you start saving, the more you can save. If you feel that you earn too less, an SIP is always a good idea – you can start a SIP with less than INR 500.

Add to that there is also the power of compounding that can help you get bigger returns on your savings, especially if you start early. Find out more here.


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