8 Top Strategies for Planning an Early Retirement

Written by : Knowledge Centre Team

2021-11-03

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Retirement is your long-term personal goal. You work hard for the better part of your life just so you can achieve the goal of retirement. But this goal does not finish here. It is continuous. The pension that you receive after your retirement plays a crucial part in determining how well you can lead your post-retirement life.

But receiving a pension is only the first milestone. How well you use that pension poses a real challenge.

Your retirement plan should also answer questions like, ‘is your corpus enough? Can you sustain without your regular income? How early can you retire?’

Here’s how to overcome these challenges through retirement planning steps:

1. Increase your Investment

In India, the standard age of retirement is 60 years. It is an assumption that the amount you are earning at 30 years of age will be ideal for you post-retirement. So, when you are 30 and looking to retire when you attain the age of 60, then contributing 10-15 per cent of your annual income to the retirement fund is sufficient.

The earlier you want to retire, the more part of your income you will have to invest:

A. 10-15% of your income for a comfortable retirement at 60 years

B. 18-20% of your income if you wish to retire at 55 years of age

C. Approximately, 35% of the income if you want to prepone retirement to 50

So, make sure you can set aside desired part to enjoy your early retirement.

2. Ensure you have Adequate Insurance Cover

No matter how much you plan for your retirement, you just can’t know what the future has in store for you. You may have ensured that you have sufficient corpus to live but if something happens to you.

For example, in a serious illness, all the effort that you put before will be wasted. Here’s where a life insurance plan can help you so that your planning does not go in vain.

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Life insurance policies such as term plan protect your family as it offers life coverage for a specific period. It also gives you the option to add riders such as critical illness riders. Here are the insurance covers you should consider for a safe retired life:

a) Term insurance cover
b) Critical illness health insurance
c) Mediclaim insurance for self and family
d) Accidental disability cover

Also, if you already have insurance and decide to retire early make sure you have enough money saved that you can pay your premiums even after you retire.

3. Keep an Eye on Inflation

The retirement corpus you have created and is adequate now, may not be so a few years down the line. All thanks to inflation. Things get more expensive with each year. The price you see for your favourite burger now was not the same as two years ago.

So, it is necessary to account for inflation in your budget so that your funds don’t exhaust earlier than you thought.

4. Get Out of Debt

In your life, you may have some debts, or you may have taken some loans to your name. These carry interest and regular payments. Make sure you are done with these payments before you decide to retire.

If these payments continue after you retire then these payments will unnecessarily dent your retirement fund. Therefore, better see through all the loans before hanging your boots.

5. Achieve your Family Goals

When you get married and start a family, you find a lot of new goals for achieving, such as a child’s education, buying a new car, home, etc. You would want to make sure that these investment goals are achieved before you decide to retire early.

If you plan to fulfil these goals after you retire, make sure that your corpus is large enough. If not, then you may have to wait for some more time so that it does not burden your post-retirement corpus.

6. Cut Down your Fixed Expenses

If you minimize your fixed expenses, your wealth will last longer automatically. Cutting down on expenses such as kitchen expenses, transportation, house maintenance, etc will go a long way in making your wealth last longer.

Moving to a smaller city will help you cut these expenses and even provide you peace of mind.

Minimizing these expenses will also give you a buffer that can be used in any emergency as and when it arises such as medical, house repairs, etc.

7. Find More Sources to Earn

Another way to make your money last is finding a source to earn more. Building a passive income source always helps. If you can earn extra then it will reduce the burden on your corpus and will make it last for a longer time.

Following investments can help you build an extra income:

a) Real estate for rental income
b) RBI gold bonds

Both incomes are inflation-adjusted and can support your pension income in the post-retirement life.

Moving to a smaller house and selling or letting out your city house is a great option to generate income while reducing expenses.

If you have taken early retirement to start a different profession, then the income earned from this can also add to your existing corpus.

8. Adopt a Healthier Lifestyle

Health costs in the country are increasing with each passing year. Getting sick not only takes a toll on your physical health but also your finances.

Adopting a healthier lifestyle and habits has become very important nowadays. Few things go a long way in keeping you fit and fine, these are

a. Eating nutritious foods, avoiding junk food
b. Exercising regularly
c. Avoiding habits such as smoking and drinking

Adopting these things makes your body function well and significantly lowers your chances of contracting a major problem such as heart ailments, blood pressure, cancer, etc.

There could be many reasons why you would want to retire early than the specified retirement age. Unable to cope with the long, stressful hours of the job, wanting to start something new or you just want to travel the world and enjoy. But early retirement without a sound financial plan can trouble you.

Buying a proper retirement plan or a pension scheme will help you plan so that you can think of retirement early.

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