7 Simple Tips for Early Retirement

Talking about retirement planning, it is often the most neglected goal. However, the increasing financial independence amongst the millennials has been pushing the concept of early retirement forward. Retirement at 60 used to be the norm earlier; the new norm lies in dreaming of retiring in your 40s.

Attaining financial independence and early retirement is emerging as a preferred financial aspiration amongst the youth of today. Here are seven simple tips to help you move towards early retirement:

1. Have a clear financial goal towards early retirement

The first and foremost task one must fulfill to move a step towards early retirement is to commit to such an aspiration. It is said, “failing to plan is planning to fail.” If you do not plan to retire early, it is highly unlikely that early retirement can be a practical reality for you.

As such, an early retirement must be on your bucket list, and you must start planning judiciously to achieve the financial goal in the desired time frame.

2. Invest Consistently

Just like small drops of water make an ocean, small savings over the long term can help you accumulate a healthy sum of money by the time you are in your 40s. Also, the consistent saving habit on regular basis can also help you infuse a sense of financial discipline into your lives. It is easy to blow up money when young and with no responsibility.

Market movements may trigger fear and greed psychosis amongst the investors, which may cause investors to either invest at higher valuations or not invest at all at lower valuations. Instead, one may continue to invest consistently in markets through mutual funds.

3. Start Investing Early

When one plans for early retirement, the time horizon to achieve a sizeable retirement corpus already reduces by 10-15 years. This may call for making suitable modifications in the financial plan since it can impact your plans through both sides – a higher retirement corpus requirement due to higher life expectancy post early retirement and lower time for investment and compounding.

As such, one must indeed start investing as early as possible, so that one can make the most of the investing period. For example, if you start investing Rs. 10,000 per month at the age of 25, and are aiming for early retirement at the age of 45, you can have a retirement corpus of approx. Rs. 1 crore by your retirement (assuming your investments generate returns of 12% compounded monthly).

However, if you delay to start investing by just five years, the retirement corpus shrinks to almost half at around Rs. 50 lakhs, assuming all other assumptions staying constant. So, you now know the importance and vitality of starting to invest early.

4. Choose your investment products wisely

Just like it is important to invest, it is equally important to channelise your investments in the right product. When one makes investments towards long-term financial goals, even a small difference of 1% in annual returns may magnify within the investment corpus over the long term due to the compounding impact.

Continuing with the example shared above, assume that one starts investing at the age of 25 to retire at 45. But being a conservative investor, parks the similar savings in bank account with 3.5% interest per annum.

Then the investment portfolio will only be valued Rs. 35 lakh, as against Rs. 1 crore, if the savings are invested in the products generating 12% returns compounded monthly for similar period. Being prudent by having a basket of investments is important in giving good gains.

5. Stay Debt Free

The consumption and saving preferences are witnessing a significant shift, as the millennials tend to live in the moment, instead of saving for the future. As such, they tend to indulge in luxurious expenditure beyond the existing means of income and consequently may resort to rolling over credit card dues.

However, if one desires to have an early retirement, staying financially disciplined and debt free is another important step in pursuit of early retirement. When one stays burdened with credit cards, it not only stresses the existing cash flows but also eats into the saving’s share in terms of additional interest payouts.

Thus, it is always in your interest to stay debt-free, for it can help you to maintain a higher disposable income and, thus, the savings surplus.

6. Budget wisely for your other financial goals

It has often been seen that one may plan well for tangible financial goals like buying a car, child’s education or a dream vacation, but retirement planning is often neglected. But when you are planning for early retirement, it should be sufficiently budgeted in your financial planning, especially considering the relatively lesser time for achieving the desired corpus.

However, one must ensure that it is one of the financial goals and not your only goal, as other financial aspirations like buying a car, new house, family vacation, etc. will also continue to be there. Unless you have planned for your other goals separately, any unbudgeted goal will tend to eat into your retirement corpus.

7. Stay flexible

While one may have planned well for early retirement and is also investing towards the same, uncertain future may call for making suitable modifications in the financial plans. This may include targeting an earlier or later date for early retirement, changes in the desired retirement corpus, etc.

Instead of stressing about such changes, it is always helpful to stay flexible in your financial plans, when coupled with a genuine commitment towards such plans.

With these simple tips, you can target towards an early retirement, and aim to enjoy the second innings of life at an early stage with equal zeal and enthusiasm.

Simardeep Singh


Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment.