Early retirement in India: How much corpus do you really need?

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Understanding early retirement

Early retirement normally means resigning from work prior to the age of 60. To many, it is the freedom to pursue individual interests, travel, or simply spend more time with loved ones. Early retirement also means that your savings must see you through the long term—typically 25 to 35 years or more. Financial preparedness is thus essential, as you will have no current income to fund your living expenses and inflation.

Computing your retirement corpus

Your dream retirement corpus will differ based on your expected life, expenses, and longevity. A thumb rule is the 4 percent rule, which indicates that if you live off 4 percent of your total corpus annually, it will last you around 25 years. If your yearly expense is Rs.12 lakh, you will need a corpus of approximately Rs.3 crore. But if inflation is at 6-7 percent on average in India, it's safer to take a higher target, say Rs.4-5 crore, depending on your comfort level and healthcare needs.

Inflationary adjustment and rising costs

Inflation is one of the largest challenges to early retirees. Something that costs Rs.1 lakh a month today can easily become Rs.2-3 lakh two decades from now. Medical bills, especially, keep rising faster than general inflation. So, it's important to plan for future expenditures in real, not nominal, terms. Investing in inflation-beating products such as equity mutual funds, index funds, or hybrid schemes during your working years will enable your savings to increase at a rate higher than inflation.

Establishing a sustainable retirement plan

Your corpus for retirement should have a combination of investments—equity for growth, debt for stability, and liquid funds for an emergency. Financial advisors recommend using two to three years' worth of expenses as liquid or short-term products. Health insurance and term plans are also essential so that medical emergencies do not wipe out your corpus. Post-retirement, a phase-wise withdrawal from aggressive to conservative investments keeps your corpus intact without giving up the regular income.

Who should choose early retirement

Early retirement suits individuals with excellent job security, high savings rates, and a sound investment scheme. It suits those who are willing to live within a budget and responsibly splurge. But anyone choosing to do so must also keep in mind long-term medical expenses, inflation, and the financial squeeze of unexpected events.

Early retirement planning is not really about becoming rich—it's more about becoming financially free and secure for decades to come when you retire.