Ways to Plan a Stress-free Early Retirement
After years of hard work, most people dream of a stress-free early retirement. This is the kind of retirement where you are free to indulge in some quality “me” time or just some good old rest and relaxation. With proper financial planning, this dream can come true. However, how an individual comes to that goal has changed over the years. Today, long-term investments can feel so big that it almost feels impossible. This is true, especially if you are just beginning to see some financial independence.
In order to attain your financial goals for early retirement, it is prudent to break down your goals into smaller and more manageable levels of financial independence. Doing this makes it easier to track short-term progress, which in turn helps you stay motivated throughout the process. In the long run, it will also help you get over the initial hurdles of overcoming that mammoth task. Here is a list of tips that will help you plan early retirement.
#1 Start as Early as Possible
Getting started early will give you a head-start on your early retirement goals. If you begin investing in your 30s, chances are that your dreams of early retirement will be challenging at best. There are a number of early investment strategies that can help you get started.
The concept of FIRE (Financial Independence, Retire Early) is a fairly new one in India. However, it has gained considerable popularity among millennials for a number of reasons. The concept requires individuals to save 70% of their total monthly income leaving only their 30% income for necessary expenses. This requires individuals to live frugally by spending less and cutting down on unnecessary expenses like lavish weekend dinners and avoiding expensive purchases. The 70% money saved can be put into various investment vehicles like mutual fund investments or even saving plans. When you consider the compounding interest on the investments, it can add up to a fairly handsome return. The earlier you start, the bigger the retirement corpus.
#2 Prepare for Potential Contingencies
Contingencies have a weird way of rearing their head when you least expect. They come in the form of medical emergencies or an economic crisis and require your immediate attention. When you plan for your early retirement, make sure you consider various contingencies that may impact your life financially. A smart way to approach planning for future contingencies is to expect the worst. Hoping for the best and therefore not being prepared for these contingencies can throw a spanner in your early retirement plans.
Studies have shown that the biggest contingency at a later stage in your life is related to individual health and the rising costs of medical care. In fact, rising medical expenses are known to be the number one cause for families moving down the economic ladder. To avoid depletion of your retirement corpus, make sure you get adequate healthcare insurance to cover all your medical expenses.
# 3 Aim to Beat Inflation
Every rupee saved is a rupee earned. However, the value of the rupee you save today, may not be as much as it was when you saved it. Rising inflation can potentially end your dreams of early retirement. One of the major inflationary factors to consider is the rising cost of living. Sticking to an “only savings” strategy will simply not be enough to meet your financial needs post-retirement. In order to be sufficiently covered, you need a mixture of high-risk/high-return wealth creation tools as well as long-term investment instruments. The concept of wealth creation should be a vital element in your early retirement plans, as it further accounts for future inflationary measures.
# 4 Minimize Debt
Debt is an inevitable part of life. However, there are certain kinds of debts that should be immediately eradicated to avoid any interference in your investment goals. High-interest unsecured loans and credit cards are forms of credit that should be avoided at all costs. If you do find yourself in debts of this nature, make sure you clear it off as early as possible. Once you’ve cleared off your debts, make sure to close the debt accounts immediately. Credit cards and some loans charge additional fees (annual fees, holding fees) which if not paid for add up considerably over time. You don’t want to fret about a credit card you had many years early when you’re enjoying the retired life.
# 5 Get to Know Your Investment Options
Understanding your investment options is the first step in making an informed decision about how to reach your retirement goals. However, with a plethora of investment options at your disposal, deciding the right investment can be a bit challenging. Retirement insurance plans are one such investment option that serves as a good source of future retirement income. When in doubt, it is wise to speak to a financial advisor who can guide you in making smart investment decisions along the way. Also, remember to use the retirement planning calculator to know exactly how much to invest today and your pay-out post-retirement.
Early retirement should be an enabling decision that allows you to live life on your own terms. If you have decided to go through with retirement at an early retirement age, the points mentioned above will help you remain stress-free from financial constraints during the latter years of your life. Getting started early and making the right financial decisions along the way are key factors for a successful early retirement.
Take the first step in retirement planning by going through the retirement plans that suit your early retirement goals.
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