Publication: The Economic Times Mumbai; Date:2008 Apr 16; Section:Personal Finance; Page Number: 19
Retirement at 45 is the dream of many people today, but sadly very few realise what it takes to make it come true, finds Amar Pandit
As Kids, we always thought adults who work were so lucky as there was no school or college to attend. However, the reality starts when you are in the midst of your career and you realise life as kids was perhaps the best time of your lives. Similarly, there is a feeling that retirement could be that ideal period. However, I am not sure if you would feel the same when you managed to actually retire at 45. The grass is always greener on that side of the world. It is thus paramount to understand the purpose of retiring early, which might seem trivial now but will have a solid bearing on your retirement. Once you have figured out your purpose, the next thing is to work out a strategy on how to get there. So what does it take to retire at 45? The first step is to find out the magic number, big enough that enables you to maintain your lifestyle, aspirations, provide for contingencies and finally leave a legacy for your family and the world.
• Save at least 25 % of your gross incomeThe whole point is to set aside a sizeable chunk of your earnings. Besides giving you a retirement income, these funds could be handy in paying off your liabilities or paying for your children’s education. Don’t be stingy but don’t live for Saturday nights. Achieving financial freedom means that you plan not only for yourselves but also for your future generations.
• Buy a House within your budgetOne of the key things you would want to have before you retire is a roof over your head. The sooner you start the better, as you would essentially like to retire without a sizeable loan on your head. Have not more than 30% of your net income as EMI towards your house. In the current scenario, it is better to defer buying a house till prices correct meaningfully.
• Invest 70% or more of your savings into equityThere is no point looking for lower-assured returns. You can afford to be aggressive with your portfolio at this point of time. A few years before retirement, you can start to move towards debt. The market could certainly tank when you are nearing retirement but if you use debt as your primary engine for retirement corpus, you have no shot at an early retirement unless you are born with a silver spoon.
• Manage expenses prudentlyBesides inflation, luxuries if used, can become a necessity and hence, always ensures that your expenses go up with time. A mobile phone would have been a luxury several years ago, but today it is a commodity and you might aspire to have the latest gadget with you. It’s very important to understand your unique lifestyle and how expenses could scale up when you retire. Quoting from Gene Perret, “It’s nice to get out of the rat race, but you have to learn to get along with less cheese.”
• Invest inherited assets prudentlyIf you are lucky enough to get a windfall or an inheritance, ensure that you invest it prudently towards creating assets rather than blowing it up.
(The author runs My Financial Advisor)
To read the original article click here