Simple financial tips to retire early!

A normal retirement is known as superannuation. It is an event where on completing a certain age in the services of an organisation an employee is due to move over to spending life peacefully. Early retirement occurs when an individual retires before the required or generally accepted age of 58 or 60 years. Early retirement is possible for those who have saved a large enough corpus to take care of larger than usual number of years in the retired life.

The emphasis of this article is retiring early and enjoying retired life. This reduced employment tenure to support a larger post-retirement period requires an added confidence, a strong asset base and trusted income stream to enable the right decision making. Also, there should be some vocation to be pursued for fruitful utilisation and prestige during retired life.

The following are the three arrangements which need to be ensured before venturing out to retire early:

1. Accumulated corpus and wealth created

The sufficiency of the corpus for an enjoyable post-retirement depends on the length of such expected period and the extent of monthly expenses. Also crucial are the expected inflation, including lifestyle inflation, and the commensurate return expected from investing corpus. The emphasis is on striking a critical balance between the withdrawal rate from the corpus and an adequate rate of return on the corpus.

2. Management of corpus

There should be a robust and diversified asset base. A second house ensures a good market-linked income stream and a healthy appreciation in the asset along with tax benefits, if a loan is availed to buy the second house. A prolonged retirement period of around 35 years requires financial assets which provide an inflation-beating return.

An optimum asset allocation and an effective monitoring of the same in consultation with experts, usually Certified Financial Planner(CM) professionals who are trained in this aspect, ensures the protection of a sustained desired income stream.

3. Commencement of a new career

After taking an early retirement one can pursue an alternate career of choice. The time engagement, social networking and pecuniary aspects along with an image and reputation in society are other benefits. Managing a proprietorship firm or a partnership firm is the most effective way of such engagements. Taking up consultancy and advisory services or freelancing can also be explored on fee and commission basis.

One aspect that comes forth as a result of the above observation is the importance of health insurance. If health insurance is taken at an early age it will serve the purpose as well as the employer benefits would cease to be available earlier than normal retirement. Some other types of insurance such as accident, disability and critical illness cover must be taken to protect the retirement kitty.

Life gets more difficult as one gets older, thus it become imperative that if one is going to live longer s/he must start planning for it right away. Retirement planning is a relatively simple exercise which requires investing discipline and regular monitoring. However there are some important points which should be considered while planning for retirement.

1. Start early

If one wants to retire early, one has to start planning for it early. It is most practical to start at a young age, as soon as a person gets in to employment. A person has higher risk bearing capacity to enable her/him earn suitably higher returns. The effect of compounding does wonders to accumulate a sizable retirement kitty with the small streams of savings invested.

2. Set clear retirement goals

Oneshould be clear about one's expenses in relation to the income earned. The expenditure post-retirement and the lifestyle that one would like to maintain will give an idea on how much money is required as corpus on retirement and what quantum to be invested periodically at an expected rate of return.

3. Be disciplined

Since retirement is the most distant goal, the other short-term goals might take precedence and one has the tendency to dip into retirement savings for fulfilling other goals.

3. Approach a financial planner

A certified financial planner or CFP professional will help to identify the goals and suggest strategies to achieve them. The plan once made needs to be monitored periodically to ensure that it is moving in the right direction in the face of changing market dynamics. Such professionals are adept at taking all factors into account while crafting a wholesome financial plan, the retirement planning being an integral part of the same.

If one is able to follow all the steps mentioned here in a disciplined manner over the desired working time with the help of a financial planner then one can sit down and relax enjoying the sunset years.

The writer is working with Financial Planning Standards Board India (FPSB India) in the capacity of Vice Chairman and Chief Executive Officer. The views expressed here are personal, and do not necessarily represent that of the organisation. FPSB India is the sole marks licensing authority for the CFP marks in India, through agreement with US-based FPSB Ltd.