How to Retire Early

 

Your hand struggles to reach the ringing alarm clock to shut it. Instead it hits the snooze button. While getting up, you tell yourself that weekend is round the corner only to realise its only Tuesday. As you head for work negotiating the email avalanche, you start envying just about everybody on the road doing his or her own thing even as you soldier on in the rat race. You often wonder if there is an escape from this rigmarole. You sigh and wish if only you could retire from all this early and do the things you dream of - unlimited family time, golf, books, films, travel and friends.

Well, the bridge isn't as far as you think. You can actually retire much earlier than your retirement age. It could be 55, 50 or even 45. Here is a simple plan that provides the recipe for you to get whip up a life you dream of.

Plan your future life

You may retire early but you will need to be actively engaged in various activities. What will they be? Unless you plan various activities after retirement, you will not even have a clear idea of what you are shooting for. Make a plan of your post retirement days so that those days are more interesting than the ones now.

Find out what it takes

True, you need to have save enough to retire and replace your regular pay cheque with aretirement income. But it is not such a big ask if you decide early and estimate how much you need. Then you get a savings target to aim at. This is not just your retirement money but consider this as your "financial freedom" money.

Prepare for the inflation monster

As it does now, the inflation monster will continue eating into your savings when you stop working. So, when you set a target, you need to keep in mind the fact that you always have enough despite the monster nibbling away your savings.

Repay your loans

Retiring early is like batting in a rain curtailed limited overs cricket match. You need to score faster than in a regular match. This means you need to earmark a greater portion of your pay for retirement investments. You can only do this when you aren't repaying loans through EMIs. Therefore, you need to quickly repay outstanding loans to enhance your investment amounts and make your savings grow.

Ride the mutual fund vehicle

If you want your investments to move on to a higher gear, you need to choose the right investment vehicle to ride. This is where equity investments help. They have the potential to provide reasonable returns in periods over 8-10 years or more and help your money outgrow inflation.

For a simple way to invest in equities, invest in equity mutual funds through systematic investment plans (SIPs). They allow you to invest a fixed amount regularly. Besides investment growth, equity funds score high on taxation front since there is no tax on capital gains for investments older than one year.

Progressively increase regular investments

You can start with a small SIP amount and keep increasing it as your income increases. This will speed up your progress towards starting your second innings. This means directing greater part of pay hikes and unexpected incomes like bonus and incentives.

Have separate investments for other needs

Early retirement doesn't mean that your other needs will just go away. You need to successfully achieve them. For longer term requirements like child's higher education, you can have separate SIPs. You can follow the same SIP strategy as for retirement.

If you want, you can plan even more. But as far as finances go, you don't need to sweat. Regular and progressively increasing investments should help you hit the winning stroke of this early retirement cricket match before the overs get over. And then, it will be your turn to be at the centre of others envy as you become the player of the match.

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