Eight Things You Must Do To Have Your Finances In Place For Early Retirement

Retirement planning has become extremely important for all with the changing social and financial landscapes. Traditionally in India, the retirement age has been 60 years, when an individual enters into a phase of life where they no longer need to go to work daily.

You hang up your boots after years of hard work. However, with the changing lifestyle, economic advancement and rapidly evolving financial landscape, early retirement is slowly emerging as a popular idea for many people, especially the youth.

The principle of Financial Independence, Retire Early is becoming a widely accepted trend among young professionals. Those looking forward to early retirement, waiting till the age of 60, may not be a smart strategy to accumulate enough funds for their golden years.

Before deciding to retire early, people should make sure they have sufficient assets saved for their monthly living expenses and old age-related needs like rising healthcare expenses. It is characterised by significant investment, savings and financial discipline in the long run.

Financial security in your retirement years may seem like a distant goal without a proper plan. However, with a few simple steps, you can build a sizable corpus to meet your financial needs in your golden years.

• Prepare your plan early: Planning and saving must begin considerably earlier if you wish to retire before the age of 40. Saving money should ideally begin as soon as you receive your first pay cheque. This will enable you to save over a longer time period and the retirement corpus can grow into a sizable amount due to the power of compounding.

• Create Emergency Fund: Set aside three to six months' worth of costs before proceeding. Many experts recommend setting aside that amount in an emergency fund. Your funds should be sufficient to cover you during periods of employment, unforeseen costs or other unexpected issues.

• Prepare Budget: The foundation of a successful early retirement strategy is a budget. You might not be aware of your current financial situation if you don't have a budget. This will, therefore, delay your retirement goals if you set aside less money than you can truly afford. Adapting your financial strategy to your changing retirement goals is also important.

• Select Right Investment: Early retirement limits the amount of time that can be saved. Your investing window is limited to 25 years if you begin saving at age 25 and intend to retire at age 50. Selecting investment products that provide larger returns over time is necessary, particularly when taking the inflation rate into account. You can consider diversifying your investments across different asset classes like equities, gold, FDs, bonds and real estate.

• Make the most of your retirement contributions: Redirecting any extra money you have left over at the end of each month to your retirement investment schemes should be your first priority. This will facilitate your early retirement plan and help you reach your planned corpus fund even before you reach the targeted retirement age.

• Know your Human Life Value or HLV: The current worth of your future liabilities, income, expenses, and other assets constitutes your human life value, or HLV. Understanding this figure can help you determine how much you must save in order to live comfortably in retirement by the time you are 40 or 50.

• Split your investments: It is never a good idea to use all of your money to invest in one or two options. You could lose all of your money if those investments fail to perform well. You may find it difficult or impossible to retire before the age of 60 as a result, and your retirement plans will be delayed by many years.

• Cut down on debt: Debts and obligations can quickly mount up and significantly reduce your total income if you are not careful about what you spend money on. Your monthly savings will decrease significantly as a result. Therefore, stay away from recreational debt as much as you can.

Early retirement may seem like a fancy idea, but it needs years of financial discipline to achieve your target. Initially, it may seem a daunting task, but you can reach your early retirement goal with a prudent financial strategy and a habit of saving in the long run.