How To Retire Early?

Financial Independence, Retire Early (FIRE) is a movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit. Indeed, anecdotal evidence suggests that “FIRE” is a financial goal that’s rising in popularity – particularly among millennials – with many people in their early to mid-thirties aiming to retire as early as 45. 

Perhaps, having spent the bulk of their working lives in the layoff ridden, uncertainty laden post-2008 aftermath has led a large number of young professionals to firmly decide that the traditional retirement age of 60 just isn’t for them. But whatever the reason may be, retiring by 45 is no easy task, especially with lifespans going up year on year! Here are five things that could help.

Prepare for huge sacrifices

If you want to retire early, you’ll need to live well below your means for anything from ten to fifteen high-earning years (the catch being “high earning”) of your career if you’re to achieve your goal of retiring by 45. As a thumb rule, you need to be prepared to put away up to 70 per cent of your post tax income for a period of 15 years, in order to achieve a sizeable enough corpus – and this will mean making drastic cuts to your lifestyle for anything from one to two decades.

Don’t avoid risk

The biggest mistake you can make during your accumulation phase is to get stuck into low risk/ low return products such as FD’s, Life Insurance and PPF. Make sure your monthly savings flow not just into equity oriented mutual funds, but into the most aggressive small/midcap variety through SIP’s. Don’t worry, ten to fifteen years is long enough to average risks out.

Loans? No, Sir.

Loans of any kind will obliterate whatever chances you have of achieving your goal of retiring by 45. If staying loan-free entails driving a smaller car, not having a second car, or not buying a home, so be it. Loans front end much of the interest into the first half of the tenor, and lead to a dangerous cycle of borrowing and repayment that will make it impossible for you to save aggressively enough to achieve your ambitious target. As a thumb rules, take no loans whatsoever – even your credit cards need to act as a mere convenience tool.

Manage risks post retirement

Just as its critical to go all out and be invest aggressively during your accumulation phase, it’s equally important to tone down your portfolio once you actually enter your income generation phase. There may be periods when your portfolio, even if its largely concentrated into fixed income assets, gives you muted or near zero returns (for instance, many debt funds have given zero returns in the past six months). If such a situation were to arise, you’ll need to resist the temptation o “punt” with the intent of covering lost ground – as that may have potentially disastrous consequence if your risky investment falls by 30-50 per cent. Aim for no more than a 10 per cent annualised return on your post retirement corpus and maintain a low risk asset allocation that can help you achieve this return over the long run. Don’t let a couple of bad years change your asset allocation strategy.

Make Fitness a conscious choice

What does health and fitness have to do with your goal of retiring early? More than you can imagine. As you and you spouse age, you’ll likely need to shell out progressively larger sums of money each year towards medical expenses. Who’s to say what levels quality medicare will inflate to twenty years hence? Watch your fitness levels closely so that you don’t need to dip into your precious retirement corpus to fund medical costs. Remember, beyond a point, your decision to retire at 45 will be irreversible – your chances of landing a job at 50 after having been unemployed for 5 years will be slim, to say the least. You’ll need to safeguard your corpus with all you have.