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Early Retirement Planning

Retiring early from your work life is one thing, but meeting your life goals and staying on course after retirement is a completely different ball game (see Make Early Exit Count, 3 October 2012). Early retirement brings with it the challenges of meeting life goals, such as your children’s education and their weddings, along with bearing household expenses long after you retire because of increasing life expectancy. Retiring in your 40s would mean that you still have two more decades to retire and may be two more decades to live thereafter considering life expectancy. Therefore, taking up a second career would be a good idea. Your professional experience could come in handy here. However, if you want to change things up a bit and try out something new, you could explore that too.

How To Plan For Early Retirement


Remember, it is in your 40s that you will have to meet most of your big-ticket goals for children. Also, identify your other future goals, prioritise them and invest accordingly. To stay on course, carve out a portfolio across assets such as equity and debt. Also, your portfolio could be biased towards debt funds, but the absence of income and goals should not lead you to shun equities. To counter inflationary impact on the purchasing power of money, equity needs exposure anywhere between 60 per cent and 75 per cent of the corpus as it can deliver high returns in the long run.


Identify stocks that can be held for long. Ideally, stick with large-cap stocks and those which are a part of the index. Mid-caps with good fundamentals may, however, be picked, but track them regularly. Do not over-trade or over-diversify your portfolio. Use stocks for the long term to help in estate planning too. While investing in mutual funds (MF) identify 3-5 well-performing equity MFs and invest under the growth option. Make use of the systematic withdrawal plan (SWP) feature as it is more tax effi-cient than the dividend option. SWP lets you withdraw pre-decided amounts from your investments at periodic intervals. There are two options in an SWP-fixed withdrawals, in which you specify the amounts you wish to withdraw from your investment on a regular basis, and appreciation withdrawal, in which you can withdraw your appreciated amount. For those in the highest tax bracket, the fixed withdrawal option would be more suitable, and that too after keeping the scheme for a year.


If you still have liabilities and goals to be met or have financial dependants, get a low-cost pure-term insurance cover which gives a high coverage (of at least 10 times your annual family expenses). Take a health plan to cover your family. Insuring non-earners would need investment evidence, however, avoid high-premium plans as they come with long-term commitments.


The fixed income portion of your portfolio can be 25-40 per cent of funds in safe and assured returns products. Spread your portfolio across bank deposits, post office monthly income scheme and rated corporate bonds. As the interest in most of these are taxable, choose five-year tax saving deposits to save taxes along with equitylinked savings scheme of MF. Keep your Public Provident Fund (PPF) active and extend it beyond 15 years if need be.


Even for an early retiree, active life would generally be over around the age of 65. Plan for avenues that can serve you with regular pension, especially for women, as they tend to live longer than men. Use MFs and direct shares for it along with pension plans such as the National Pension System.


With no income proof, getting a loan could be difficult. For a retiree, it is an advantage nevertheless to keep debt under control. As the dependency on regular income is out of bounds, plan ahead before big-ticket purchases.


If you have clearly identified your liabilities and earmarked funds accordingly, you will get through retirement or even early retirement without much fuss.

Next To Come: Planning A Sabbatical