How many more years should you work?
How many more years should you work?
Expert’s advice to start planning for retirement at an early age, however, what’s the right age for retirement? The protocol laid by the constitution or a VRS [Voluntarily Enforced Scheme] enforced [at times] by semi-government and private firms? Looking for answers?. Let’s get started –
The Age To Retire
We can categorize people into three categories
- Go With The Flow – Under this category people simply follow the firm’s norms and wait for retirement to happen. Like a person working with a firm who has a policy of retirement at an age of 65, so they would happily work until their last day and then retire.
- Plan My Day – Under this category people plan “when they want to retire” and look forward to a new role or passion or simply spend their life with family.
- Enforced Retirement – Under this category people are enforced to opt for a VRS.
Is it possible to retire earlier than my official Retirement age?
Well, of course, YES you can retire early! If you have –
- A retirement corpus ready that includes your regular monthly income and surplus in case of emergency
- A dependable health insurance cover
- No Dependents
- Clear all your debts
- A smart diversified financial portfolio that will provide for regular monthly income.
If you fulfill the above checklist, you are ready to retire early!
Close to Retirement – How to prepare for it?
With proper planning and managing assets, any individual could plan to retire early. We present to you the step by step procedure to achieve it.
Step 1 – Get Answers To Your Questions
- At what age do you wish to retire? For proper wealth creation, you may need 10-12% per year
- Get a number on your post-retirement monthly budget.
- Do you have a proper health insurance policy for you and your family?
- Do you have a term insurance policy for your family?
- Have you picked up instruments where you would be investing in your post retirement fund?
- Do you have any loans pending?
- How much money do you need in case of any emergency post-retirement?
- Do you plan to work after you retire?
- Do you foresee any major expenses post-retirement?
Step 2 – How Much Money You Need
Let’s take an example –
Harish who is working as an IT employer is 35 years of age and is planning to retire at an age of 55 years with an inflation of 7 %.
With a life expectancy of 80 years, here is what Harish currently spends and the amount he may need at an age of 55.
|Current monthly expense [Annually]||60,00,000 INR|
|Medical Expenses [ Annual]||10,00,00 INR|
|Critical illness expense||50,00,00 INR|
|Your Dreams Value [ like world tour, pilgrimage or social work….]||50,00,000 INR|
|Total Amount needed||13,54,38,596 INR|
If you have planned to create a corpus of RS 13,00,00,000 at your retirement start date, you have planned well for your retirement.(Note this amount is only as per aboev example given)
What one needs to do is identify what existing investments and resources are available to meet this target and what more needs to be done to bridge the gap if any, after considering retirals, investments, financial and non financial assets and evaluating post retirement expenses.
That means you need to invest 21, 49,739 INR [annually] at a rate of interest 10 % to reach to the retirement corpus.
Step 3 – Design Your Portfolio
The age old policies like LIC endowment policy may not help you meet your retirement goals; hence it’s better to diversify your portfolio with a mixed bag of equity and debt funds. Try our 4-3-2-1 allocation –
- 40% of your Fixed deposits, Post Office Schemes, for interest/pension
- 30 % of debt oriented hybrid mutual funds for principal/capital gain
- 20 % into equity-oriented hybrid mutual funds for dividend/capital gain
- 10 % of Fixed deposits, Post Office Schemes, for interest/capital gain
- Don’t withdraw your EPF but transfer it when you change jobs. It should be a priority at the new workplace.
- Automate your savings by taking the SIP route. This way, even if you forget to invest one month, your bank won’t.
- Whenever you get a raise, allocate 15-20% of the additional income to savings. You won’t even notice the outgo.
- Don’t dip into your PF for your child’s education. Err on the side of caution by assuming conservative returns from investments. For equities, 12% is reasonable while debt won’t give more than 8%.
- Monitor, your retirement portfolio’s performance periodically and take corrective steps if required..
Step 4 – Clear all your debts
Home loan, Car loan, personal loan or any such type of debts should be cleared off as a priority.
Step 5 – Do not mix Investment and Insurance
At one hand where your investments could help you retire early, your insurance would help you and your family in case of any major illness or your death. Hence, it is important to
- Get a good health insurance cover for you and your family
- Get a term insurance of 50,00,000 or 1 crore to let your family sustain even in case you are not there.
RETIRING BEFORE OFFICIAL RETIREMENT AGE- ARE THERE ANY ILL-EFFECTS?
Retirement is just a new chapter of life, which may have some changes that you may not foresee, like for example
- Corpus Needed earlier and for longer period – Retiring early means build your corpus much earlier that could serve you for longer years.
- The corporate benefits – Mobile service providers, carpooling, may not be applicable.
- You may run short of money – It could happen if you have missed an important parameter in your planning and suddenly you feel you do not have enough money.
- Higher Incomes – In the last year of your career, a person with huge experience usually draws a good Hence that would be left out if you plan to retire early.
- No clarity post-retirement – Many people have a vague answer of what they want to do after retirement like we’ll see or just want to relax. That could create more frustration, as till 50/55 years you had a routine and some aim, suddenly you cannot stop and simply relax.
We hope we have answered your queries on how you can plan your early retirement. If you still have any unanswered questions or need help, feel free to contact us here.
We would be glad to help you with your planning and investment related decisions.
Dilzer Consultants Pvt Ltd.