February 2

Planning For Early Retirement

These days many of us aspire to retire early in life. Some wish to achieve it at 50 while some with very high aspirations aim to retire as early as 40. But retiring early is a decision which can be taken only after analyzing your financial situation. Many a times retiring even at 60 is not viable due to various reasons. You may have to work longer or even consider making some changes in your lifestyle to deal with post retirement issues. So retiring early has many aspects which you have to analyze to decide whether you can really achieve it.

Early Retirement

Here are few of the factors which you should consider:

Do you have Enough Savings?

When you retire early you are actually aiming for a longer post retirement life. This may require additional corpus to sustain those additional 15-20 years. Although much will depend on the lifestyle you are living with but this additional expense means you will need a higher corpus. There are no short cuts and so planning have to be done much ahead in life to accumulate the required corpus. There will be changes in your financial situation which you need to anticipate and plan for. The bigger issue faced in early retirement is accumulation of required corpus in a short span of time and investing post retirement to generate the supporting income.  Most of the times either of these falls short.

 Managing Your Budget Post Retirement

If you aim to retire early you will have to stick to a very calculated budget. Even if you have accumulated the desired corpus you will need a very rigorous withdrawal rate to sustain it for your post retirement years. This may sound easy but things span out differently when you actually live a life like that.  Your budgets such as telephone bill, living expenses etc.. tend to  increase and actually make a quite significant increase in your budget. Whether the withdrawal rate will take you through the years is what you have to analyze. If there is a shortfall you may have to take some drastic measures to ensure you can sustain. Selling your high value home to move to a low budget house is one tough step to cut down your expenses.

The High Medical & Other Cost

When you are working you actually receive employer benefits which are helpful in your life to deal with many emergencies. One of the main expenses is healthcare cost which tend to rise after every interval. Sometimes the rise is very significant. If you retire early then this  cost will have to be taken care by you. Also, it is most likely that you will still be left with many responsibilities to shoulder such as children’s education, weddings, paying off loans etc… In general you continue savings through out the horizon to ensure the fulfillment of goals. But when you plan to retire early you will have to make provisions for all such as post retirement expenses which may or may not be achievable.

What If?

Retiring early can throw up many challenges. There can be opposite scenarios which can derail your plan and so every possibility should be looked into.

  1. What if the plan didn’t work out? What will you do in that case? Do you have a back-up plan wherein you can delay your retirement and continue with your employment? Not having a backup plan can be disastrous at this stage since there is a long way to go.
  2. What if the early retirement brings boredom to you? Most of your friends will still be working and enjoying the employer benefits. This peer pressure and different life may make you think again about your decisions.
  3. What if you don’t enjoy this early retirement life? You will start looking at going back to employment and there you may face challenges.

A retirement is looked upon as a change in lifestyle. Many retirees opt for different line of work which they can actually enjoy and work according to their schedule. The social life also takes a change as they get more involved here.  Retiring early may pose a challenge as unlike at 60, you may find many in your age group still involved in their busy life. How you will then cope with time and other such retirement issues is what need to be answered.

Questions like above should be answered well to actually come out with a definite plan for your early retirement. If any doubt remain within these or you are able to figure out then giving a second thought to this plan would be wiser.  Also your family financial situations may demand you to continue with the same earnings and that’s going to be the biggest challenge of all. Where will that earning come from and what will be the sources is what you need to figure out.

A retirement is not only from work but actually from a busy schedule and moving to enjoying work as per your liking. But life has different meanings as it keeps on throwing challenges at you. Hence every goal has to be prepared well in advance. If retiring early is one of them, planning cannot be 3 or 5 years ahead but much before. Having said that you should also be prepared mentally if life situations do not work out accordingly. In such scenario you should have  a back-up plan so that your financials do not take a hit.


budget planning for retirement, managing retirement corpus, Retirement Planning, saving for retirement

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