Are you really prepared for early retirement?

Retiring early and travelling the world is something a lot of people aspire for.

“My worst decision was to retire early,” said Satish, 53. A successful IT professional, Satish had encashed his equity stock options and had built a good nest egg. Being in a role that demanded long working hours, he decided to take early retirement to spend more time with his family. However, he found himself lonely and worried about his ability to fund all his family’s needs and have enough to last for the next 30 years.

Retiring early and travelling the world is something a lot of people aspire for. Certainly, working in a Tier 1 city involves long travel and probably longer working hours, which people do not want to continue for long.

Socially, too, things have changed in India. No longer do societal circles look down on early retirees. But are you actually ready for early retirement? It is not only about being financially ready but there are many non-financial factors to be considered.

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The financial math

Let us assume you are 35 years old and have current expenses of Rs 1 lakh. The corpus required and the amount to be invested are as follows:

While you may be getting your travel list ready, stop and check if you know the corpus to be built and if you are investing the requisite amount for this corpus. Remember, this is only for living expenses during retirement. If you have other financial responsibilities, you will need to plan for those separately.

Financial factors outside one’s control in retirement

The retirement corpus is based on the future value of the current expenses based on current inflation. However, the expenses may change drastically based on lifestyle and plans during retirement.

For instance, travel costs have shot up at least 30-40 percent in the last few years. If travel is a key part of retired life, the amount forecast is going to be insufficient. Unforeseen events like large medical emergencies can also prove to be a setback.

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Some expenses that are accounted for may change in value, like in Satish’s case. While he was prepared to fund higher education in India, his kids wanted to study abroad and that meant at least 5-10 times more outlay for both kids put together.

It's not just the money

Retiring early allows time to pursue passions, move away from the daily rut and possibly improves well-being due to lower stress but can also make one lonely and sometimes could lead to a loss of meaning.

I have come across successful executives who have built enough wealth and decided to retire only to find their friends and family circles do not have time for them, as they are still working. People also start missing the social aspect of work and could end up overspending due to boredom.
I see many retired people taking to stock trading to pass their time. Where do they get all this money from to do stock trading? From their retirement kitty, of course.

If you plan to retire early, here are a few checkpoints:

· Assess the right amount to invest. While estimating expenses, do not reduce expenses on children or insurance premiums as they will get replaced by other expenses. Budget for 20 percent extra expenses over current expenses in order to have sufficient amount for any activities.

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· How will you spend your time after retirement and do these plans align with your partner? Your partner may have different wants and aspirations and you need to plan your finances accordingly. You also need to have a way to be mentally engaged for at least 5-6 hours a day. Make sure you have funds for that.

· Is there a way to generate income during retirement? Evaluate income-generating options and your ability to access these options.

· How will you get health insurance?

· Will you be able to adjust your life, spending and portfolio as per the market situation? Most retirees look for steady income and found it very difficult to manage when interest rates fell to an all-time low.