How To Retire Early? 6 Step Guide To Retire Early

Senior Retirement Homes

Who wouldn’t want to retire early and live life their way if given the chance? Yet, most people do not have a comprehensive understanding of “early retirement”. To retire early in India, you must first understand each aspect of it. Read this blog to learn about retirement planning, early retirement strategies, and more.

Why Retire Early?

Early retirement has several benefits, including pursuing your dreams, travelling the world and living stress-free. The right early retire tips can allow you to spend more time with your loved ones. Early retirement in India will also help you lead a manageable and stable life with ample opportunities to start a new business or pursue hobbies.

How Much to Save for Early Retirement in India?

According to experts, you should aim to save 5-10 years’ worth of annual income to retire early in India. Ensure that you invest in passive income-generating assets for consistent post-retirement income.

6 Steps to Retire Early in India

If you are looking for an answer to “how to retire early”, read these six tips –

  1. Picture Your Lifestyle After Retirement

What does early retirement mean for you? What’s the right early retirement age for you? Introspect, discuss and decide the answer to these questions with the people you can rely on to plan your retirement budget and figure out the kind of life you want to live post-retirement.

Your pictured lifestyle post-retirement will decide the amount you need to save while working and the insurance cover you should secure pre- and post-retirement. If your lifestyle choices are expensive, such as settling in a foreign country, your investments and savings should be able to support it.

  1. Create an Early Retirement Budget

No matter what kind of lifestyle you have on your mind after your early retirement, you must create a budget. It should include the expenses, savings, investments and emergencies pre and post-retirement.

Depending on your liabilities and responsibilities, you may have to factor in various expenditures, but creating a budget will help you determine where you are, where you want to be and how you can realise your dream to retire early in India. You can create a practical budget with the help of widely accepted rules like the 50/30/20 rule.

  1. Invest Based on Early Retirement Goals

If you want to retire early in India, you should consider a mix of traditional and modern investment options, including –

  • Provident Fund (PF) – Provident Fund offers a secure, long-term investment with tax benefits. Ensure that you take advantage of your company’s PF scheme.
  • Public Provident Fund (PPF) – It is a popular choice, offering tax-free returns and a lock-in period of 15 years. However, partial withdrawals are allowed after the 7th year.
  • Equity Mutual Funds – You can go for a Systematic Investment Plan (SIP) in equity mutual funds if you want higher returns over the long term. You can diversify across large-cap, mid-cap, and small-cap funds.
  • National Pension Scheme (NPS) – NPS offers a mix of equity, fixed deposits, liquid funds, and government funds. As a voluntary and long-term retirement savings scheme, it enables systematic savings.
  • Real Estate – Though it requires substantial initial investment, it can be a good long-term asset if you consider locations with good appreciation potential.
  • Sovereign Gold Bonds – Sovereign gold bonds offer an alternative to holding physical gold and are government securities denominated in grams of gold.
  • Health Insurance – Medical expenses can be a significant burden post-retirement. Ensure that you get good health insurance coverage for emergencies.
  • Emergency Fund – Secure a separate emergency fund with 3-6 months of living expenses to prevent dipping into your long-term investments in times of need.
  • Recurring Deposit (RD) – With RDs, you can invest a fixed monthly amount and receive the principal amount with interest after a predetermined period. They are, thus, a low-risk savings option. Though the returns are more conservative than equity investments, they are a low-risk savings option and provide stability to your portfolio. You must know the maturity date and RD withdrawal process after maturity to ensure a smooth transaction.
  1. Pay Off and Avoid Debt

Each long-term loan you take affects assets that can be used post-retirement and increases costs in terms of the interest being paid. Be mindful of them to retire early in India.

  1. Create Multiple Passive Income Schemes

Divide your current multiple standard of living by 35% to determine the passive income amount you would need to cover your living expenses. You should account for 25% taxes and save 40% of your passive income to reinvest.

  1. Get Health Insurance

Early retirement requires you to have more than sufficient health insurance coverage. Do not treat it merely as a tax-saving instrument.

Retirement can mean different things to different people. Whatever it is for you, the more you plan now, the more you can set yourself up for your dream of early retirement. We hope the early retire tips in this blog will serve as a primer for you to embark on your early retirement journey.

Author Bio: Naina Rajgopalan has a thing for numbers and a deep fascination to learn about all things finance. She’s been money-wise from a young age and has always shared her knowledge and tips with those around her.

Being a part of the content team at Freo, a neobank that offers flexible and customised financial products, along with benefits such as insurance on balance, safe & secure banking, and so on, Naina stays updated with the latest of what happens in the banking and fintech industries.

She has taken upon herself to share her knowledge with readers across all walks of life to help them manage their finances and budgets better, so they can make better decisions while spending, borrowing, investing and saving.

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