The responsibilities of a working life often bog us down making us wish for retirement as early as possible. An early retirement, is a dream for some people and they would jump hoops to achieve it.
The biggest challenge of early retirement is that you would need to gather your retirement corpus in a much shorter time frame than if you were to retire at the usual retirement age. You would also need to accumulate a much bigger retirement corpus as compared to the sum you would need if you were to retire at the usual retirement age. This means, when you retire early, you have less time on hand to save, and the amount of money you need to accumulate is much more.
How do you manage an early retirement?
The arduous challenge of retiring early cannot be met by simply passively investing in a pension plan or any other retirement plan. It requires special preparation. There are three ways to successful prepare for an early retirement. Depending upon your existing savings and wealth, you need to opt for either, or all of these tactics.
1) Save Aggressively:If you are currently 30 and you wish to retire at 45, you need to save all that you can in the next 15 years. The target retirement corpus has to be enough to take care of all your retirement expenses for the rest of your life. So, essentially you need to save enough in the next 15 years so that you can live comfortably for 30 years after that without earning. If you are able to save just 50 percent of your earnings, it implies that you would be able to save just enough to meet your retirement expenses for 15 years post retirement. Therefore, you need to be more aggressive than that. If your money is reinvested at the rate of inflation, the savings should be to the tune of 66 percent of your salary.
2) Invest Aggressively:Investing aggressively is important if you want to make more out of your limited savings. Traditional investments like gold or debt will only help you get caught up with the inflation rate at best. But, when savings are limited you need to make sure that your investments work harder to deliver the desired return. While being aggressive, you need to be sure that you are not being complacent. Aggressive investment may require you to hire an expert to manage risks for you, but if you think you have the relevant expertise, you too can take up the onus of making the investment decisions.
3) Leverage:Leveraging can work wonders if you have spotted an asset. For example, an apartment in your close vicinity which you believe will appreciate in value quickly would be a good asset. This means, the annual return you earn on the asset is much higher than the interest you need to pay to borrow the money to purchase the asset. When you retire, you can choose to put up the apartment on rent and use the rental proceeds to finance your living. The rental earnings on the apartment will keep pace with the inflation rate and you will be able to easily maintain your purchasing power throughout your retired life.