Retiring early, at an age before 60 or even 50, is becoming more and more appealing to many individuals, thanks to the increasing awareness of financial planning and the availability of various investment options. Attaining this objective necessitates a disciplined approach to saving and investing. However, the decision to retire early should not be made hastily. It is essential to evaluate your current financial situation and make adjustments to your investment and savings in line with your retirement objectives.

Early retirement becomes feasible once you achieve financial independence, where you are no longer reliant on your full-time job to support your lifestyle. Here is a guide on what steps to take if you are contemplating early retirement.

Assess Your Financial Position

The first step is to understand your current financial situation. This includes evaluating your savings, investments, and liabilities. Create a comprehensive list of all your assets and debts to get a clear picture of your net worth. This will help you understand how much more you need to save and invest to reach your retirement goal.

Adhil Shetty, CEO of Bankbazaar.com, says, “Calculating the retirement corpus is crucial. This is the amount of money you need to sustain your lifestyle after retirement. Consider factors like inflation, life expectancy, healthcare costs and any other personal expenses. A popular rule of thumb is to aim for a corpus that is at least 25 to 30 times your annual expenses.”

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Investment Options

* Mutual Funds: Mutual funds, especially equity mutual funds, are popular among early retirees. They offer the potential for high returns and are ideal for long-term investment. Systematic Investment Plans (SIPs) in mutual funds allow you to invest regularly and benefit from rupee cost averaging and compounding.

* Stocks: Investing directly in stocks can provide significant returns if you have the knowledge and risk appetite. It’s advisable to diversify your stock portfolio across different sectors and avoid putting all your money into a few companies.

* Real Estate: Real estate remains a preferred investment for many Indians. Investing in rental properties can provide a steady income stream post-retirement. However, the real estate market can be illiquid, so consider this as a long-term investment.

* Public Provident Fund (PPF) and Employee Provident Fund (EPF): PPF and EPF are secure and tax-efficient investment options. They offer compounded interest and are backed by the government, making them low-risk investments. The EPF is particularly beneficial if you have been contributing to it during your employment.

* National Pension System (NPS): NPS is a government-backed pension scheme that allows you to invest in equity, corporate bonds, and government securities. It offers tax benefits and a steady pension income upon retirement.

* Fixed Deposits (FDs) and Senior Citizen Savings Scheme (SCSS): For those seeking low-risk investments, FDs and SCSS are good options. They provide fixed returns and are safe investment avenues. SCSS, in particular, is designed for retirees and offers attractive interest rates with tax benefits under Section 80C.

Health Insurance

Securing adequate health insurance is essential, as medical expenses can deplete your savings rapidly. Choose a comprehensive health insurance policy that covers critical illnesses, hospitalization, and outpatient expenses. This will ensure that you are financially protected against health-related contingencies.

Tax Planning

Effective tax planning can help you maximize your savings. Utilize tax-saving instruments like PPF, NPS, and ELSS (Equity-Linked Savings Scheme) to reduce your tax liability. Additionally, plan your withdrawals and investments in a tax-efficient manner.

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Create a Withdrawal Strategy

Having a clear withdrawal strategy is important to ensure your corpus lasts throughout your retirement. Consider a mix of systematic withdrawals from your investments and fixed income sources like pensions or annuities. Avoid withdrawing large sums early on to protect your corpus from depleting too soon.

Lifestyle Adjustments

Retiring early might require some lifestyle adjustments to align with your financial reality. Evaluate your expenses and cut down on non-essential spending. Embrace a simpler lifestyle that focuses on what truly matters to you.

Financial Review

Regularly reviewing and adjusting your financial plan is crucial. Monitor your investments, track your expenses, and make necessary adjustments to stay on course. Financial markets and personal circumstances can change, so staying informed and flexible is key.

Retiring before 60 is an achievable goal with the right planning and investment strategy. By assessing your financial position and choosing appropriate investment options you can enjoy a financially-secure early retirement.