Is Rs 1.5 Cr Enough To Retire Early?

Here's a formula that helps you understand how much money you will need to retire early and simple steps to achieve it.
Retirement is not just about money -- it's about freedom, explains Ramalingam Kalirajan

Have you ever wondered what it takes to retire early in India?

Is it possible to achieve financial freedom by 45 or even 40?

Imagine waking up without an alarm, living life on your terms, and pursuing your passions without financial worries.

Many dream of escaping the 9-to-5 grind, but few take the time to calculate exactly what it takes.

How much do you need to achieve early retirement in India? Let's break it down step by step.

1. The Need for Early Retirement Planning

The traditional retirement age in India is around 60, but with increasing work stress, evolving career goals and a desire for a better work-life balance, many individuals now aspire to achieve financial independence much earlier.

But the big question is how much money is truly enough to quit your job and live comfortably for decades without financial anxiety?

This is where retirement planning principles like the 4% Rule and the FIRE Formula come into play.

Understanding these strategies can help you determine your financial freedom number and take concrete steps toward an early and stress-free retirement.

2. The 4% Rule: How It Works

The 4% Rule is a widely accepted retirement planning guideline that suggests you can safely withdraw 4% of your retirement corpus annually without running out of money.

This rule is based on historical market returns and assumes that your investments will grow over time, covering both inflation and daily expenses.

To illustrate if your annual expenses amount to Rs 6 lakh, then the required corpus is:

Rs 6 lakh divided 4% = Rs 1.5 crore

This means that by accumulating Rs 1.5 crore, you should be able to withdraw Rs 6 lakh per year while allowing the remaining funds to grow, ensuring financial sustainability for at least 25 to 30 years or more.

However, this rule is not fool proof.

Market downturns, unexpected medical expenses, or a longer-than-expected lifespan can impact your corpus.

Wouldn't you want to ensure a more robust plan tailored to your personal financial situation?

Diversification and periodic reviews of your investment strategy are crucial to making this rule work effectively for your retirement goals.

3. FIRE Formula for Early Retirement

If you want to retire early, you need to calculate your target corpus more conservatively.

The FIRE (Financial Independence, Retire Early) Formula suggests:

Multiply your annual expenses by 25 to determine your ideal corpus.

If your annual expenses are Rs 3.6 lakh, then your ideal corpus = Rs 3.6 lakh × 25 = Rs 90 lakh

Your retirement corpus should not only cover your expenses but also generate returns that outpace inflation.

This means investing in stocks, equity mutual funds, gold, and real estate is crucial.

Alternatively, mutual funds that offer proper asset allocation across these asset classes can help you sustain wealth in the long run.

With a well-planned approach, even if inflation increases your expenses over time, your corpus should last for 30+ years, allowing you to leave behind wealth for future generations.

4. How to Build Your Retirement Corpus?

Building Rs 1.5 crore or Rs 90 lakh corpus may seem daunting, but it's achievable with systematic investing.

Here's how:

• Start Early: The earlier you begin, the more you benefit from compounding
• Invest in Growth Assets: Equity mutual funds and stocks provide inflation-beating returns over the long run
• Use SIPs (Systematic Investment Plans): Investing consistently in mutual funds helps build wealth gradually
• Increase Your Savings Rate: The more you save and invest, the faster you reach your target
• Diversify Investments: A mix of equity, debt, and alternative investments can provide stability while maximising returns
• Reinvest Returns: Letting your earnings compound over time will significantly boost your corpus

Real-Life Example:

Let's say you invest Rs 15,000 per month in an equity mutual fund that offers 12% annual returns. Here's what your corpus could look like:

Clearly, patience and disciplined investing are key to achieving your retirement goals.

Wouldn't you rather start today than regret later?

5. Safe Investments for Retirement

Once you reach your target corpus, your investment strategy must shift to capital preservation. Consider these options:

Senior Citizen Savings Scheme (SCSS): Provides government-backed security with stable returns

Fixed Deposits (FDs): Offer safety, but returns may not always beat inflation

Debt Mutual Funds: A good option for balancing risk and returns

Dividend Stocks: Provide passive income while preserving capital

Would you put all your money in one place, or would you diversify to reduce risk? A balanced approach is the key to a stress-free retirement.

Conclusion

Retiring early in India is not just a dream -- it's achievable with the right strategy.

By following the 4% Rule, FIRE Formula, and smart investing, you can build a solid retirement corpus.

But are you making the right investment choices? Consulting a Certified Financial Planner (CFP) can ensure you're on the best path to financial independence.

After all, early retirement is not just about money -- it's about freedom. Are you ready to take the first step?

• You can ask rediffGURU Ramalingam Kalirajan your questions HERE.

Ramalingam Kalirajan, an MBA in finance, is a certified financial planner. He is the director and chief financial planner at Holistic Investment Planners, a leading financial planning and wealth management company.

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.