December 4

When do you want to Retire

In olden days people used to get into a job after college and retire from there when they turned 60. Gone are those days. In today’s fast paced world, youngsters are very clear about their life goals. While in college they already plan when they will retire. With the myriad career opportunities available, it is easy to plan careers and retirement too.

What is retirement?

There are many definitions of retirement. In this context, the most apt would be discontinuing work in your primary area of employment which is a major source of your income.

Why do people want to retire early?

It would be an ideal world if people loved what they did for a living. Very few people do. Unfortunately, in many cases, your primary area of specialization in academics or experience does not allow you to pursue what you want. And what you really wish to do, may not pay enough to meet your living standards or may just be an expense oriented thing. So, this conundrum leads to a wish to retire from employment to pursue your true wishes.

Is it possible?

Yes, in today’s world it is very much possible to plan an early retirement. This is because good education ensures good incomes and there are many good investment options to create wealth, it is easier for this generation to take the plunge.

What to keep in mind?

Just dreaming of early retirement will not suffice. Fulfillment of a dream requires proper planning.

First and foremost thing to do is to define timelines. Say you start your first job at the age of 23. You decide that you would want to retire at the age of 40. So you have defined a timeline of 17 years to create your retirement corpus. This can of course be flexible as future circumstances may be very different from what you anticipate. But at the same time, it will not be possible to plan if there is no time goal defined.

What do you want to retire for?

You might have a vague idea of what you want to do. May be you want to get into social work, or start a firm that works for environment protection, or a travel mart or just watch flowers grow in your farm!  Whether there will be a regular income after you retire, from your alternate venture, or you will live off your savings and investments, will form the base of your retirement planning. You should aim towards creating a corpus that would at least meet the basic living requirements of your family. If you want to start your own venture, you should look at creating a base capital for that. Working in the area of your interest to gain experience will definitely make things easier when you take-off on your own. Also, it will help if all major liabilities are paid off by the time you retire. So, if you have a home loan, you should look at ways to repay it as you approach closer to your goal.

Once these decisions are made,

you can get down to the nitty-gritty of the action plan.

Keep track of your income and expenses : Make a budget and stick to it. Try to follow the rule of Income-Investments= Expenses. Most people do Income-Expenses= Investments

Prioritize goals: This is essential in the early career as funds might be insufficient to allocate towards all goals. The aim should be to maximize savings and investments, while prioritizing goals.

Start saving early: Do not wait till you have some lump sum to save. Start with whatever amount is possible for you to save. At a younger age, when family responsibilities are less, you have a big leeway to save major portion of our income. There are many options like mutual fund SIPs which can help you save small amounts at regular intervals. The power of compounding will help your little investments grow to substantial amounts in a few years.

Save regularly: Once you start a saving plan, persist with it. Do not break the plan for frivolous reasons, or reasons like upheaval in the investment market. Upheavals in the markets may look scary when you are right in the thick of it, but they might not really dent your long-term wealth creation prospects. In many cases they might be blessings in disguise allowing you to buy quality assets at cheaper rates.

Invest wisely: Don’t get misled into buying unsuitable products that offer low returns, offer something you may not require ( like an insurance cover ), are illiquid and are not tax efficient.

Secure self and family: When you start a family, make sure that there is enough financial protection for the family in an unfortunate scenario where your income may not be available due to disability or death. This will ensure fulfillment of your responsibilities towards your spouse and children even in your absence. Both life insurance and health insurance are absolutely essential.

Keep an eye on your goals: Any investment made or financial decision taken, should be with a eye on your goals. If you make investments which are not aligned to your goals your target may never be reached, or there might be a delay. If mistakes are made, do not hesitate to rectify them even it costs you some amount. Investment mistakes, if not rectified at early stages, can compound into bigger problems in future, eating away your corpus.

Seek professional help: If you are not comfortable doing things yourself, seek professional help. For a fee, financial planners can guide you to reach your goals and help you avoid making expensive errors in financial decisions.

Now that you know that it is possible, have you started thinking about when do you want to retire?


Early Retirement, Retirement

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