40 is the new 60, and that’s an absolutely great thing. Don’t believe us? Well, what if we told you that you could actually retire at the age of 40 instead of 60 and all your dream retirement activities like pursuing your passions, living by a beach, moving to a foreign country, reading books, etc. can be advanced by about 20 years?
Now before you fully immerse yourself into this beautiful dream about your future, let’s talk about what you actually need to do to retire in your 40s:
Start early: The basic thumb rule is to start as early as possible. The sooner you start, the sooner you will be able to achieve the retirement nirvana.
Set the time and goal: Based on your personal expenses, you need to set a time and goal about when you can actually enter into an early retirement. You then need to calculate how much and for how long you need to be saving and also, how much your investment needs to work for you.
So for example, let’s take a hypothetical figure of 1000 Rs. as your retirement budget and say you are able to save about 10 Rs. per month. This means it would take you about 8 years to create your Retirement Budget.
Get debt free: One of the initial requirements for this early bliss is to be completely debt free. Plan early and free yourself from the shackles of any mortgages you might have. House mortgages are the most expensive, almost 30% of your disposable incomes.
Downsize your lifestyle: This one is simple. Do you really need that second car? Do you need all the channels for your pay-per-channel cable subscription? Can you cut down your eating out to say once or twice a week?
Basically, you need to spend less on unnecessary life expenses, and save more. Have a strict weekly/monthly home expense budget. For an early retirement, a minimalist life attitude is important. So mark a clear division between what you really need and what you want, and start making spending decisions based on that.
Count the family in: You also need to factor in who all you have to support when you retire. Especially, if you plan to retire early, your children could still be dependent on you. This means you need to consider costs such as their education costs, any extra-curricular activity cost, their health costs, etc. till they are dependent on you.
Get your health insurance in order: Once you retire, you will lose many of your employee benefits including one of the most important and expensive one: health insurance cover. So before you reach the golden age of your life, you need to figure out if your health insurance is in order or not.
Diversify the portfolio: It’s not only about saving but also about saving intelligently and appropriately. Figure out the best saving options that work for you and have a large and diversified portfolio.
Do the future math: According to most financial planners, the thumb rule is that you can withdraw about 4% from your retirement portfolio in a year. So say if your portfolio is INR 1 lakh, you can withdraw INR 4000 per year from that. However, many experts say that for an early retirement, you might even need to lower that percentage to 3%.
Work during your retirement: This might sound like a misnomer but it’s not. Many people like to do part-time work or finally pursue their dream projects during the retirement. Not only it’s a great way to retire, it also ensures small capsules of income.
Test your retirement fund: It’s time for a trial run! Before you take the actual retirement plunge, test out your retirement fund for about six months to one year and see if it’s really working. This can help you get a realistic idea about how much you really need for your actual retirement.