There are 5 essential steps which you need to primarily focus on when you ask for early retirement planning advice.
Step 1 : Household Expenses at the time of Retirement:
A key piece of retiring early is keeping your household income low. An ideal situation is to pay off all your debts and mortgages before retiring. Now you will have to analyse how much money you will require to spend on your daily necessities after retiring. For example: Today you require 25,000 to fulfill your household basic needs then after 10 years what will be your household expenses. Lets consider 7% inflation. So ideally you will require around 50,000 after 10 years to pay for your basic necessities.
Step 2: How and Where to Invest:
For the early retirees, idea of investing in the diversified portfolio with low to moderate risk would be an ideal scenario. Let’s consider that investing in debt mutual funds can offer you 7-8% returns whereas equity mutual funds can offer you 10-12% returns. So when you diversify our portfolio, you can expect around 10% diversified portfolio returns annually.
We have enlightened our readers with lot of information and explained in detailed with example. You can read our knowledgeable article on Best Investment Options in India for more details.
Step 3: How much should I have in Savings:
These days, “retirement” can be better termed as “financial independence.” As retirement isn’t connected to a specific age, and it may entail continuing to work or volunteer. It’s all about doing what you want, when you want.
So your next question should be how much to invest to get 50000 per month if you want to retire early at 40 years of age i.e.. after 10 years. Let’s take an example: If your diversified portfolio offers you 10% returns then you will require corpus of 60 lakhs to generate monthly income for you after retirement.
Step 4: Manage your Taxes:
Just that when you are working on your retirement plan, taxes are also as important consideration in your retirement planning, whether you retire early or not. It’s crucial step to include an estimate of your annual tax liabilities in your “total savings needed” amount. If you are withdrawing money from retirement accounts to pay your income tax, then your early retire plan may go wrong.
For example: If you need 50000 per month as a household expenses after retiring and your income falls under 30% tax slab then ideally you require 71,428 per month for your basic necessities before deduction of taxes. Now after managing your taxes instead of 60 lakhs as corpus you require around 86 lakhs as a corpus, if you wish to retire early.
Step 5: Track and Accomplish your Goal:
This is an extremely crucial step where you need to periodically monitor your early retirement planning. You need to track your investments to identify whether your goals are on track. If there are any hurdles then you need to fix or revisit your investments to accomplish your goal.
This steps would assist you in your Early Retirement Investment Strategy as well as Early Retirement Planning. Hope you like it. Do leave your valuable feedback.