A successful early retirement mainly depends on how well you have planned your finances so that you achieve fiscal independence. But savings alone cannot be enough to meet rising inflation and living expenses of retired life as you will not have any regular income. Hence, if you are planning for early retirement, you would want to follow some thumb rules:
Calculate your expenses
It is extremely crucial to know how much you are spending on a monthly and yearly basis. It will give you a rough estimate of how much money you would need as a monthly expense once you retire.
Begin with essential expenses such as rent, food, clothing transportation, insurance premiums, and utilities. Do not forget to add any loans you might have taken and keep a tab on your credit card debts. Try to pay off all your pending bills, debts, and loans. So if you have bought a flat in Chennai on a home loan, you can either pay it off before you retire or have enough money to pay it off after retirement. Moreover, a lot depends on how early you want to retire. Individuals who will have dependent children after retirement should keep a sum of money set aside for paying premiums to continue health insurance plans and life insurance policies.
Money requirements
Once you have chalked out a budget for all your retired life, your next area of focus needs to be how much amount you would need if you wish to retire early. There is no fixed way to calculate this amount, but the general thumb rule requires you to set aside 25 to 30 times the budgeted expense plus enough cash money that covers one year of expenses. To calculate how much money you would need when you are 40 or 50 years old would require you to incorporate inflation and its impact on the daily cost of living. For example, let’s assume that your monthly expenses at present are INR 20000, amounting to INR 2, 40,000 annually. When you divide this amount by four per cent, it equals INR 60, 00,000 per annum, which is the amount of money you would need every year when you retire.
Saving and investing money regularly
Timely action is key when it comes to financial management. So you must begin saving early in order to ensure that you have enough funds at the time of retirement. However, savings alone is insufficient- you need to have investment options such as mutual funds, shares, sovereign gold bonds, crypto currencies, real estate, fixed deposits, post office schemes, corporate bonds, etc. By investing your money in a wide range of investment options like buying a flat in Chennai, you allocate your funds in a way where your money grows.
Regular management of investments
Investing alone is not enough, you need to track your investments regularly. Your investment portfolio must be diverse enough so you can yield the benefits of different rates of return. So if you are looking for a long time investment, you can consider buying a flat in Chennai. In fact, buying a 3 BHK apartment in Adyar would be a better investment option in comparison to stocks if you consider yourself a conservative investor. The real estate sector in India is booming right now with new businesses and employment opportunities opening up in the post-pandemic period. With record low home loan rates, investing in real estate makes perfect sense. A luxury apartment in Adyar will fetch great returns in the form of rental homes.
Take your health insurance seriously
The cost of healthcare is rising at an alarming rate and if you are to deal with a medical emergency, your savings will get wiped out in no time. So if you are considering early retirement, health insurance must take precedence. Remember that if your employer covers your insurance, it is only applicable till the time you are remaining employed. Health insurance premiums also rise with age. So people buying an insurance plan in their 40s and 50s will be paying high premiums. So start buying health insurance when you are young and healthy. If you not only lower the premium amount but also provide wider coverage and relatively relaxed terms and conditions.
It is also important to remember that your health insurance needs to be reviewed and updated at various stages in life. When you are single, your coverage amount will be lesser than what it would be post-marriage and having a family. Moreover, with age, our bodies are susceptible to several illnesses which would require higher costs. So your health plan must be adequate enough to buy policies that are for critical illnesses. These plans are different from your regular health plans as you need to pay a lump sum amount when diagnosed with a critical disease as mentioned in the policy. If this seems to be beyond your reach, look for health plans that add critical illnesses to your basic health insurance policy.
Bottom line
Early retirement is something that requires meticulous planning and investing in the right places at the right time. The key to a good retirement plan lies in an early start. Additionally, never underestimate the importance of an insurance plan as it would help your dependents and provide financial security to your dependents after your passing. It is wise to choose a term cover amount after carefully considering the financial needs (and your debts if any) of your nominees. If you are unsure about where to start, you can seek help from a professional to create a sound plan that ensures a peaceful and safe retired life.