Believe me, ‘they’ are common people like you and me and are not blessed with special powers. Once upon a time, they were also running amok in the cat and mouse race of corporate life, but still, they can hang up their boots and retire early when they have energy and zest for life. But, how? The answer is simple—they put their twenties to good use with these tips for building a secure and happy retirement life.
The earlier you start, the better the chances of accumulating a sizeable nest egg before your retirement. Thanks to the power of compounding, a 25-year old has a better chance of retiring at 50 than a 35-year old. For instance, if a 25-year old invests Rs 10,000/monthly, he will get Rs 1.34 crore at the age of 50, considering the rate of return as 10%. However, if the same amount is invested at the same rate of return by a 35-year old person, he will accumulate Rs 41.79 lakh only. Then again, a 25-year old would be in a much better state to control his/her asset allocation and invest more in equities than a 35-year old.
Go with aggressive asset allocation
As per the general investment rule, 100 minus your age is the percentage of savings that one can invest in equities. However, the rule would be different for a person who wants to retire at 50. While, a 25-year old can afford to be ultra-aggressive and put the lion’s share of savings in equities, the same can’t be said for a 35 or 40-year-old.
When age is at your side, you can invest more than 90% of your funds in equities whose volatility will ease out in the long run and switch the fund when the target is near. However, the strategy would be different from a 35 or 40-year old who would have lesser time and therefore, he should start putting 65-70% of investments in equity and gradually reduce it as he approaches his retirement age.
Also, keep the goal of retiring early separate from your other short-term goals, like child’s education, marriage, foreign vacation, buying a house, etc. Equity investments should never be used for any obligation which is maturing in the next two or three years.
Get rid of debts
The use of loans and credit cards has become a common trend in today’s life. However, the debt of any type can be a huge drain on your income. Set a goal to pay off all your current debts before you reach the retirement age and stay debt-free after that point. You will not want your retired life to be burdened with EMIs, right?
Aim for your corpus to grow minimum by 8% or 9% annually after retirement to account for inflation. Even if you are retiring at 50, you might be living for the next 20 or 30 years without any regular source of income. Hence, it is recommended to invest around 20% of your money in equities after retirement. Though capital protection is necessary to post retirement; you can’t completely rely on fixed income instruments like bank fixed deposits, provident fund, etc.; to combat the inflation factor as the returns given by them can never compete with the returns of the equities.
Buy retirement plan
To deal with your fears of losing money in equity, you should invest in a retirement plan which not only grows your money but also keeps it safe from the market volatility. For instance, ICICI Pru’s Easy Retirement Plan is a ULIP plan which, along with giving you higher returns, also protects your money with its assured benefit feature.
It means your money is protected in all the scenarios as the insurer guarantees to give at least the invested money at the maturity, irrespective of the market conditions. It means, in any situation, you will not lose what you have invested.
Further, on completion of the tenth policy year, the pension boosters will be added every fifth policy year, and thus, your savings will continue to grow without additional investment. At maturity, you can receive your money either as a regular income option or withdraw a certain portion of the money and use the remaining to receive the regular income.
Retiring before 60 may look like a far-fetched dream which is against our traditional mindset that says one should work for the maximum years to lead a comfortable retirement life. However, the right mindset and financial plan can help you slam the door on your working life at 50 or even much before.