How to retire sooner and richer

Do you often ponder over this question without getting any definite answer? Here’s a sincere attempt!

The mindset of young professionals today has changing radically. They want to have a semi-retired life in their late forties or early fifties and then post retirement earn income by taking up a hobby instead of a regular job.

Somewhere within all of us, there is a dream to reach a point in life where we have enough wealth to be able to choose the work we would like to do and the pace at which we would like to work, if at all we feel like working; a point also referred to as financial freedom.

Financial freedom is also interpreted as being able to spend whatever amount you like, on whatever things you like, month after month.

If you think this is about you, then here is a step-by-step guide to retire early and retire rich.

The author is an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planner (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in. 

To retire according to your wishes you need to plan in advance. If you take care of the 11 points that follow then you can surely achieve financial freedom in much the way you desire.

1. How long do you expect to live?

First of all, you need to find out how long you expect to live. This is going to be the starting point for your retirement plan. While one may never be able to predict exactly how long s/he may live, a good starting point to get a fair idea can be by referring to your health history and your family’s health history.

2. Will you run out of money?

You need to accumulate enough money required to live up to that age. You need to calculate the corpus amount required for retirement based on when do you want to retire, how much you need to spend every month after retiring, inflation, tax, investment returns and the like.

There are two things which can make you run out of money in between. One is inflation and the other is medical expenses when you grow old. So you need to be very careful in assuming inflation when planning for retirement. Also you need to be adequately covered with right health insurance policies.

3. Retirement corpus break up

You need to divide your retirement corpus into two parts. One part of it is the corpus required to retire at the normal age. It could be 58 or 60. The other part is the corpus required to live between the early retirement and the regular retirement. Say if you want to retire at 50, what would be the corpus required to live between the age of 50 and the regular retirement age of 58 or 60.

First you need to accumulate money for your regular retirement. Then you need to proceed to accumulate for your early retirement. This way you break your targets and it psychologically gives you a lot of comfort in achieving early retirement.

4. Don't fall for get-rich-quick schemes

To retire early, definitely you need a sizable corpus. Don’t look for any short cuts and get-rich-quick schemes. Only with the increased risk comes the increased return. If any scheme assures low risk and high return, then it is going to be another scam. So stay away from those schemes.

5. Don't fear stocks

You need to consider investing in a well-diversified portfolio for the long-term. Diversified equity mutual fund schemes are better. By investing in a diversified equity portfolio you will be taking calculated risk and not blind risk. Equities will beat all other asset classes in the long run. So it is an important option for those who want to retire early.

6. Reduce your annual cash requirements for when you retire by working out a careful budget

The monthly income required after retirement is going to be an important criteria for deciding the retirement corpus. If you are comfortable with lesser income you can retire sooner. So you need to be careful in drawing a budget for cash requirement post retirement.

7. Find what will give you a better return on your savings

Better return on your investment portfolio will help you in retiring early. So try to look for an investment avenue that will maximise the return on your portfolio as far as possible.

8. Cut your current spending so you can save more

Money spent is money saved. Spend less, save more, invest smarter and retire sooner. There are more number of ways to spend smarter to save more.

9. Earn more now

Time is money. Don’t waste your time. Invest your time in revenue generating activities. Apart from your regular income source, there are other opportunities which you can exploit. You can create blogs; you can be a freelance writer; you can do Internet marketing. There will be numerous opportunities based on your knowledge and skills if you take time to think and implement.

10. Take advantage of tax-deferred opportunities

Tax deferment is an important tool for early retirement. Tax deferment means paying less tax now. If you pay less tax and you will have more money to save. You need to pay tax on FDs on maturity even if you renew them. Income funds and MIPs could be a better alternative to this.

You need to pay tax only when you actually redeem.

So, choose investment avenues where returns have to be paid on maturity or while redeeming your investments.

11. Find out some ways to have an income after retirement

Even after retirement you can have an income by way of a hobby or interest. You need not work on a regular schedule. Say you can be a trainer, you can be a blogger, you can be a consultant, or you can be an advisor in your chosen field.

It generates money as well as it keeps you engaged after retirement. One of my clients has written a book and he is able to generate income from the copyright of that book year on year. If you are able to generate this kind of income, then you can retire early.

Retiring early is possible for each and everybody. You need to start planning for it little earlier. Professional assistance from financial planners will be of definitely useful to you, if you desire to retire sooner and retire richer.