Have an affair with AFIRE(Achieve Financial Independence to Retire Early)

What is an Early Retirement?

 “Early retirement is not any Financial Goal; it is a Way of Life”

Early Retirement can best be termed as your ability to stop working for a living and to pursue the passion of your life without the worry of financial dependence.

When all your expenses post-retirement can be met with the returns you receive from the investments you make during your active income-earning years, you can plan Early Retirement.

It is the luxury that financial independence affords you and people look to retire by 50 to pursue the passion of their lives.

Why consider Early Retirement and be prepared for one?

Early retirement is not just an individual option. It may be forced upon you. It is not just a luxury anymore but a reality these days. Companies won’t think twice before hiring a younger person with a lower pay check to replace higher-cost employees. So, if you are not indispensable, Early Retirement should be your backup plan. If you are not ambitious to achieve it at age 40, age 45-50 makes a convincing case.

5 More reasons to consider Early Retirement/Financial Independence

1. Because you can!

2. Freedom, Courage, and Peace – Life keeps throwing curveballs at us, huge retirement corpus at a young age is like a massive safety net you can fall back upon when things go south.

3. It enables your money to work for you- Saving such a big corpus early in life provides a good base for your money to multiply and grow

4. Pursue your Passion or Set up a Company to be Be your own Boss

5. Early Retirement is not for everyone, but Financial Independence is.

What does Early Retirement mean to you?

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 have your own company, 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.

The Plan of Action

Early Retirement is a Financial Goal, much to do with the way you manage your savings and expenses, you drive your lifestyle, you desire about leading a stress-free and independent life. It is more to do with the change in mindset in achieving the goal of Early Retirement. Make the ER a non-negotiable Goal.

Staying in a job and continuing to earn the same way is a lot easier. What is more difficult? Taking steps to elevate oneself to financial independence.

Once you have decided your retirement definition, there is a mantra 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.

6-Steps to Achieve Early Retirement

STEP 1- Target 50% Saving Rate

How to create a Nest Egg for Early retirement?

The biggest difference between Traditional Retirement and Early retirement is Time. If you aspire for Early retirement you have less time to accumulate your retirement corpus or Nest Egg and many more years to live on that nest egg.

STEP 2- Lower your Expenses

This is the only thing under your control so tackle this first. Analyze your lifestyle using apps like Spendee to cut down wasteful spending without being “penny wise and pound foolish”.

For example: If you have internet in your house, you need not have T.V or cable expenses. A home-cooked food will cut down your restaurant expenses. Yoga at home cuts on Gym expenses. Etc.

STEP 3 – Increase your Income

If you’ve cut all wasteful expenses and are still not saving enough then your only option is to increase your income.

Your early retirement goal gives you clarity and urgency to do what is necessary to get that promotion or better-paying job.

It will not happen overnight, but you can work towards it purposefully now that you have a time-bound plan and reason.

STEP 4 – Get out of Debt

Early retirement is about creating passive income in the future.

Debt does just the opposite. it eats into your future cash flows. So, debt is an enemy for Early Retirees. Till the time you crush your debt, you cannot become financially independent or achieve Early retirement.

Remember that debt is expensive. For example: Say you have a 36% annual interest Credit Card and an outstanding balance of Rs.1 lakh on it. If you don’t pay back the debt for 2 years then the credit card balance will double to Rs.2 lakhs.

STEP 5- Build a Side Hustle

What are you planning to do with 2000+ hours that will free up once you quit your job? Plan a /part-time/seasonal side-hustle generating cash to cover your expenses partly/ fully after you retire early. This will reduce your worry if any regarding the safety of your retirement corpus plus keep your mind healthy and entertained.

STEP 6 – Work as a team with your spouse/partner

A couple can have different money habits, but they must agree on their financial goals to be successful. Get your spouse/partner on board and work together as a team.

CALCULATE:

When everyone works till age 60, how can someone retire at age 30 or 40? Math is simple.

Invest a large enough Early Retirement Corpus in assets such as Equity, Debt, and others which give you average annual returns of anywhere between 9-10% before inflation. Assuming inflation at 6%, you are left with-3-4% returns after inflation to live on.

How Big Should Be Your Retirement Corpus?

Take your annual expenses at the time of Early retirement and multiply it to any number between 25-50 to derive at your retirement corpus. In ER community 25 Times your annual expenses is the minimum amount of corpus recommended to call yourself an Early Retiree. We are targeting 25X as a starting target but will be most comfortable hanging our boots fully when we reach 40X.

Making sure your Early Retirement Corpus will last your lifetime

You have spent a decade or two saving up for your early retirement. Now how to be sure if you have saved up enough or not?

“Safe Withdrawal Rate” answers this dilemma: How much can you spend in Early Retirement based on your savings. The Safe Withdrawal Rate is the maximum rate at which you can spend your retirement savings, such that you don’t run out of the corpus in your lifetime. SWR approach balances between you having enough money every year to live comfortably after early retirement without depleting your corpus prematurely.

Early Retirement- In practice

If you retire early at age 30 or 40, you have 50-60 years to live after retirement. So, to be safe, Early retirees develop a skill or hobby that they enjoy, and which brings some cash flow to supplement their retirement corpus. So, most Early retirees do work, but in alignment with their life goals.

Author Name: Wealth First Finserv LLP

Author Bio: Promoted in 2000, Group Advises/Manages assets over Rs. 7,000 Crores across Corporates, Family Offices, Provident Funds, Trusts, and HNI’s and has over 20 wealth professionals with in-depth experience of over 250 years. Core Team unchanged since inception 6 Professionals with 30+ years each in Debt Markets (including Treasury & Cash Management) Firm strength of over 70. Past achievements include winning the prestigious CNBC – TV 18 award for India’s Best Investment Advisor in the IFA segment.

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