Are you looking to retire early? Sure, it sounds a wonderful idea to hang up boots and find time for activities and hobbies that you can’t focus on right now. Though, is it just a fantasy or can you actually achieve it? Retiring early means that you have a lesser amount of time for your investment options to work and create a retirement corpus for you. In this article, we will explore if you are ready to retire early, or you’d need to push your retirement by a few years.
Four signs that you are prepared to retire early
Here are four signs that indicate that you are ready to hang up your boots and enjoy the golden era of your life at an early age:
- Living a debt-free life
Retiring early with loads of debt on your chest could be quite detrimental to your health – both mental and financial. Hence, it’s important that you pay off all our debts such as car loan, home loan, mortgage, etc. before you decide to retire. If on the plus side, you are already living a debt-free life, then congratulations – you are one step closer to living your golden era.
- How much and where to save for retirement?
As a thumb rule, experts advise investors to save, invest and accumulate around 25 times their current net annual expenses after accounting for taxes and inflation. Now, for the next question, there are several types of mutual funds that you can choose basis your investment horizon, risk profile, and investment horizon. It is a good idea to dedicate a substantial chunk of your portfolio towards equity and equity-related securities as equities tend to provide significant returns over a substantial period of time. For instance, if your current lifestyle requires you to save around Rs 40,000 per month, then you must save around at least Rs 1.3 crores to combat the effects of inflation and taxes. Note, that the earlier you want to retire, the greater would be the multiplier as you would need to suffice your retirement corpus for a longer duration.
- Your health care and expenses are provided for and looked after
This is usually the most ignored, yet most important aspect of financial planning and budgeting. As one grows old, the premium paid towards their healthcare tends to increase. Remember, that if you are currently covered by your employer under company’s health insurance plan, it will cease to exist once you put your papers and retire. Hence, it’s important that you have a health care policy and life insurance in place (in case you have dependents) before you decide to retire.
- Importance of emergency corpus
If you want to ensure that nothing create a dent in your retirement corpus, it is important that you plan for emergencies, which come unannounced. One of the best ways to prepare for the worst is by having an emergency fund in place. Since, you are planning to retire early, it would be a good idea to save up to six months to twelve months of your living expenses rather than just saving up to three to six months of your gross expenses.
Retirement is a happy transition from your usual hustle and bustle life to a peaceful and relaxed life. This is the time that you can do everything your heart truly desires for – be it travelling around the world, spending your time in nature, or picking up a new hobby. So make sure that you are ready for it – both mentally and financially. Mutual funds can be a great investment option to help you retire early and start a new chapter in your life. Happy investing!
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