In your early 30s and planning to retire by 50? Here are a few things to keep in mind

Early retirement is a really attractive goal for many, especially youngsters who still have a shot at it.

If you are in your early 30s, chances are that the thought of retiring early has crossed your mind. Particularly when you have not had a great day at work.

Nevertheless, most people will have to and do work till much later in life, that is, till the age of 60. The reason is that most people (either due to circumstances or due to financial discipline) wouldn’t be able to manage a high savings rate – which is necessary for such early retirement goals.

But while the idea of early retirement is tempting, it isn’t easy at all.

Let’s take an example and this will be clear.

Let’s say you are 32 years old and fed up with your job. While you want to quit today itself, for practical reasons you target being financially independent (to have the option to retire early) by the age of 50.

Also read | Financial independence is different from early retirement

Now you have 18 years to save money for your retirement. But with rising life expectancy, chances are that you will live till 85-90 or even more. So, if you retire at 50, then you will need to have a corpus that can help last a very long 40 years of retired life (from the age of 50 to 90).

A simple retirement planning exercise for this assuming current annual expenses of Rs 7.5 lakh at age 32, average inflation of 6 percent over the years, and post-retirement returns of 7-8 percent, with about 60-40 equity-debt portfolio during accumulation years, you would need close to Rs 6 crore-7 crore at the age of 50 to have a shot at early retirement.

But is it enough, truly speaking?

Here are a few pointers to keep in mind as generally, life isn’t as smooth as mathematical formulas and excel sheets tend to show:

• First things first, saving for early retirement won’t be your only goal. If you have a family, then you need to save separately for your children’s future (higher education and marriage), purchase a house to live in, etc. The money required for all these goals will be in addition to the retirement corpus.
• There will be several non-yearly large expenses once every few years. Like house repair and maintenance, car purchase, etc. These can be high-ticket items that don’t generally feature in regular expenses but when they occur, they take a chunk out of the savings. So, this aspect should be planned as well if you are looking to retire early.
• Since you will have a multi-decade life post-retirement at 50, it is better to be conservative in return assumptions so that you increase the probability of your corpus lasting a lifetime. If not, you run the scary scenario of running out of money before running out of years.
• Everyone wants to live for long. But living longer requires money. So, it is imperative to plan for a longer number of years. More so if your spouse is several years younger than you and hence, will most probably live after you as well.
• You are smart and will have health insurance. But keep some buffer for uninsured medical expenses in later decades. Your insurances don’t cover everything. So, plan to have a medical contingency fund in place.
• Be cognizant of Sequence-of-Return-Risk. Most people don’t understand or know about it. But if left unattended and your luck turns against you, your retirement plan can be derailed.
• One of the biggest risks is the unknown-unknowns. You just have one shot at saving properly for the Retire@50 goal. You need to be sure about the numbers. Because if you get it wrong (and save less and retire with less-than-enough corpus) and realise it several years after retiring, there won’t be any going back as you, most likely, won’t get a job. So, make sure to get the (early) retirement numbers right. If you can’t do it, take help from investment advisors.

So, while you should definitely save and invest to become financially independent soon, don’t go overboard and sacrifice the present for an imaginary future. You don’t want to have a large pool of money at age 50 (and retire early) but nothing to be nostalgic in life about. Isn’t it?