Do you want to retire early? Do you want to retire Rich? Retirement – How to Decide If You Are Ready to Retire Well, an ideal situation is both and carry on working still should be a choice!
Is it really in our control to determine exactly when one can retire and when one finishes the finish line? Well, if it isn’t, then can one define the start line and determine the end line in some plan, so that at least some basic rules can be set up and the race can be a comfortable one. Here are the so-called rules to this race: Retire actually caring endlessly – that’s the new acronym
- Make some plans for determining the starting age; let’s say that you would like to retire at your age 60. And at current age 40, you have another 20 years to make provisions for your RACE beginning at 60 with a finish age of lets say 80.If your current monthly expenses are lets say Rs. 1 lakh per month, then at age 60, you would have this monthly expenses go up to Rs. 3.8 lakhs per month and you would need to make a provision of Rs. 7.8 crores corpus to last you from your age 60 till 80 with increasing monthly expense of Rs. 3.8 lakhs increasing. Let’s put this goal as the first Bucket and plan ahead for this goal and the amounts also.
- Does defining this age and amount finish the game of RACE? Well, it depends on how well the RACE is meant to be and how enjoyable should it be? With some other Goals and other races to be won, this RACE should be having other tracks to create and allow other excitements as well. TRACKS: taking really awesome creations known sometimes. Creations like holidays, second home, some charity, something for grandchildren, are all great goals set to make you happy in your golden years. Lets put these in the second bucket and now plan each of these goals with some amounts tagged to them.
- Leaving a legacy for your family can be a “wish true” goal and this sometimes can be quite daunting to draft and sometimes remains an ideal goal. How and what all do you want to “achieve”, rather wish to be achieved after you are gone or how would you like people to remember you after you. Creating such a legacy track can be difficult and should be planned as the third bucket separately. Disclosing this plan to your children should be a great idea but it isn’t welcomed and you are normally told to keep it secretive! Why? Just to ensure that your dream is achieved. Hence, having your will is critical and making your succession planning is important.
- The Decision: So, planning to retire early can be a planned event in one’s life and taking a decision to plan for an early retirement is itself an important decision. But what could prompt one to an urge for an early retirement? Could it be unhappiness at your current job, just not getting where you want to get in your career, or the hidden desire to start something where you don’t have to work towards earning money. Well, any or all of these choices could prompt you to look for an early retirement decision.
- Goal and Risk identifications: What could be just a decision now may become a need and a goal. Hence, planning for this goal as one of your top priority financial planning goals, could be a task. A task that would, perhaps, have three phases, Pre, during and post retirement. Pre-retirement could be the accumulation stage, During could be the transfer stage and and post could be the post retirement stage. Each would of course involve investment decisions. At this stage, it would become important to understand your risk profile so that you and your investment advisor clearly know your risk appetite towards money, rather your behaviour towards money and how you change your behaviour when you see your money going up or down. Based on this psychometric test, you could be an aggressive or a conservative investor and hence, you should invest your money accordingly.
- Changing times:Now with these stages, goals and risk profile clear, one can start investing your money with the help of a qualified investment advisor and continuously monitor your investments against these goals set up. Measuring the returns versus the benchmark of the same risk category and changing your investments accordingly, can be a task. This may involve putting in more money or altering the course of your investments to align with the changing times and with professional advise, you could be auto aligning your investments to reap the benefits of the ups and downs of the markets.
Retiring too early! Retiring too Rich! can hence be a single concept. A vision for your life, wherein, well planned financial journey, with all your investments are linked to your goals, would be involving thus, an effective retirement planning. A concept, which envisages plan options of retiring earlier that you would expect, if you are given a choice and also retiring rich. Rich, here would mean an ideal situation where all your goals are looking accomplished and are aligned with all your current investments. What could be the precursors and the end results of such a decisions? What could be your ideal vision for retiring early and if possible, could they happen as per your timeline? Could they bring you “financial freedom” and thus changing the very thought of calling it “retire early“. Let’s look at these these few situations to create that excitement and bring in that feeling of joy and happiness.
- Time, not money, is your biggest asset in life. Let your money work for you. You don’t work for money. That is exactly what Financial Freedom is…”. What this essentially means that if you would like to have money to work for you and you could work on anything else like charity or pursue your other hobby in life, that could be early retirement.
- Retiring too early could be choosing financial freedom at an early age, than normal retirement age like instead of 60, you would like to retire by 50.
- Assumptions: Assumptions of life expectancy and here, we assumed it to be 75 for gents and 80 for women in India. With 7% inflation and pre retirement returns expectancy of 12% and post of 9%, we had to underline the pre and post retirement age periods, respectively.
- Clearing all liabilities: I advised him to first have a time line by when he could clear all his loans. That was a massive task, as he couldn’t understand the real importance and significance of clearing all the loans on this road retiring too early.. Thus, finally, a timeline was agreed of 5 years by when he would be able to clear all the loans and he would be free from any emi (equated monthly instalments). Yes, this would be the beginning of the road to retiring too early. He understood the significance of no monthly dues and how much free (money) air could that bring in his life and free him of the earlier “suffocating emi world”.
- When the monthly household expenses, (and mind you no liabilities are around anymore), are assured to be taken care from this “corpus” for certain lifetime, it’s a great achievement! That practically means that you don’t have to ‘work” anymore and your capital is going to earn you money for you and you have to work for money any longer. This could mean retiring too early with a defined and planned goal in life.After working on the assumptions and loan free world, the next step was to be able to lead a life for the next 20 years, without having to “work” to earn for the monthly household expenses would enable him to choose a path of “no- worry”, would be an option. When you have earned the full corpus or sum of money that can sustain your monthly household expenses as well as make sure the same amount on an increasing level (inflation), would be the beginning of the financial free world.
I could conclude by opening another question that lot of my clients ask me “Taresh, can you give an ideal age when I can retire“. Well, my calculations for this query involve certain assumptions and assumptions cannot keep changing when doing such calculations. So, if one is to assume the monthly expenses currently, expected returns, current provisions made, and life expectancy, then the expected age of so called “retiring early age” can be defined. So create your legacy and create your own financial freedom. Today, you have all the choices to go and explore and seek your financial freedom. May the Joy be with you .