Picture this: You are sipping your cool iced tea and reading a book, in the comfort of your bedroom. You are not bothered by the daily, tiring commute to the office because there is no work to go to. You do not have the pressure of deadlines. You do not have any unreasonable demands of a boss. You are simply enjoying the comforting rhythm of your peaceful life.
It sounds like a sweet dream, no?
If you are wondering if this is even possible, then you clearly haven’t thought of early retirement.
But this nice fantasy of early retirement requires you to have a strong focus and discipline. Don’t worry, we will help you out in figuring out how you can achieve an early retirement.
Key Takeaways
- An early retirement plan saves you from taxes, secures your financial future and offers independence from the regular 9-5 job.
- With these many benefits, it becomes a highly preferred option for most working professionals.
- For this, you need to start saving and investing as early as possible.
- You should also seek the counsel of a financial advisor.
Here’s 5 Steps You Need to Take for An Early Retirement
Suraj wanted financial independence from his parents and so, accordingly, he took a job at a company. He worked hard and earned good money. However, over the years, he started wondering if he was doomed to work all his life until the day he retired. He did not consider the possibility of an early retirement and so for each day, for the rest of his life, he continued working. Needless to say, he became miserable and depressed.
If you don’t want to end up like Suraj, you need to take the proper steps to secure your early retirement.
Draw Up a Rough Estimate of Your Expenses Post Retirement
The first step in planning your early retirement is to calculate your approximate monthly expenditure after retirement. For this, you need to first calculate the expenditure on basic amenities. This includes food, electricity, water, house utilities and health care.
Now, in addition to this, you need to calculate additional expenses you will be incurring. This might include expenses you make for your personal entertainment, passion project or travel. Think of everything that you might spend, apart from the basic expenses.
Here, it is important to note that you enter this retirement phase, without any debt. That means that for your early retirement plan to work, you need to rid yourself of mortgage, any home loan, student loan or any other debt. If you think you will have debt past the early retirement age you have set for yourself, then include that debt in your plan.
Assesses Your Financial Requirements to Achieve Early Retirement
The most important step in making your early retirement plan a success is saving and investing your money properly.
But before you start saving and investing, you need to have a financial goal. You need to know your financial requirements that will help you achieve early retirement.
As per your financial requirements, you can then choose a deferred annuity, or immediate annuity or a pension scheme or some other early retirement plan.
Reassess Your Budget and Develop Financial Discipline
Just like any good thing in our lives, early retirement requires long term commitment and sacrifices. Once you know how much you need to accumulate to reach your final financial goal (with the help of an early retirement calculator), you should reassess how much you are spending, saving, and investing. This will require you:
To lower your overall expenditure
- To increase your earnings
- To increase your savings and investments
It is simple logic: The higher your earnings, higher your savings will be and so, sooner you will be able to reach your early retirement age.
Use Retirement Accounts to Its Full Capacity
To successfully implement your early retirement plan, it is important that you save frequently. One great way to do this is a retirement account.
When you are still earning from a regular 9-5 job, open a retirement account. Then make sure that you do your best to max it out.
Employ the Services of a Financial Advisor
Early retirement comes with its own challenges. Compared to people who go for the traditional retirement, you would have less time on hand to prepare for retirement. Not only this, but you would also have a longer retirement period and so you will have a bigger expenditure than other people.
To deal with these two challenges, you need to have a sound knowledge of investing and finance. Unless you are very experienced in this matter, we suggest that you seek out the counsel of a financial advisor. This advisor will chart out an early retirement plan, specifically tailored to your goals. They can calculate the exact number of monthly investments you need to make so as to achieve your financial goals by the time you reach your early retirement age.
Even after you take your early retirement, your financial advisor will give you counsel on your income streams and how to make them last longer.
Word To Remember
Annuity
This is a fixed amount of money that you will receive monthly for the remainder of your life.
What Are the Early Retirement Benefits?
You Can Save Tax with An Early Retirement Plan
If one was to list the most important benefit of an early retirement plan, it would be the tax savings.
If you are wondering how, then know that there is a provision made under sections 80CC and 80CCD (B1) of the Income Tax Act 1961, which allows you to avail tax deductions of upto 1,50,000. This means that you can save tax on your early retirement savings. Isn’t that fascinating?
Early Retirement Secures Your Financial Future
When you have an early retirement in plan, you will not have to depend on your financial assets entirely for a financially secure future. You will have more options to ensure stability for yourself and those who are dependent on you.
Early Retirement Plans Can Give Your High Returns on Your Money
A simple savings in a bank will not provide many great benefits for you. However, if you invest in retirement plans, you can receive a much higher return on your money than simple bank savings.
Early Retirement Can Help with Prepared for Unpredictable Emergencies
A financial back up plan, like an early retirement plan, will always protect you from any unpredictable emergencies, especially the medical ones. These medical expenses are only expected to increase as you age. So having an early retirement plan will ensure that you do not go broke paying your medical bills.
Did You Know?
According to the PGIM Retirement Readiness Survey (2021), 48% of the working population do not have an early retirement plan. Make sure that you do not fall in this category.
How To Decide What Is the Right Early Retirement Age for Me?
Implementing the right early retirement plan requires you to decide upon an early retirement age. Now, if you are wondering which age would be the best, take the following factors into consideration:
You Need to Ensure Your Future Is Secure
For an early retirement, you need to have more assets and no liabilities, like loans and pending bill payments. You need to ensure that there are multiple sources of income in place to provide for you in your retirement.
After all, you cannot simply retire if you do not have the financial strength to support yourself.
You Need to Consider Your Life & Career Goals
Some people are content with working at a regular 9-5 job but on the other hand, some want to quit corporate after a few years. The latter section usually has a different set of career and life goals. So, depending on what you have in mind, decide the right early retirement age for yourself.
Conclusion
Early retirement is a highly sought-after fantasy. However, most people lack the necessary financial knowledge, skill, and discipline to save and invest over a long term for an early retirement. Given the many benefits it has, you should seek out a financial counsellor and devise a well-tailored investment and saving strategy for yourself.
FAQ
An early retirement plan is beneficial for the following reasons:
You can save taxes on your retirement savings.
Some retirement plans offer much higher returns on your money as compared to simple bank savings.
You financially secure your future and can have the option to quit your job earlier than others.
This varies from person to person. This is because it depends on your life purpose, career goals and financial stability.
You should start saving for an early retirement as soon as possible.
You should seek the counsel of a financial advisor.
For this, you should get the help of a financial counsellor.
Read more about Annuity Plan for Retirement.
