A common trend these days is retiring early. A standard question I am asked is, ”How soon can I retire?”
The following are some of the factors that govern this query:
- Your existing savings and the investment strategy for the same.
- Your proposed level of savings going forward and the investment strategy for the same.
- Estimate of your future lifestyle expenses.
Other factors include rate of inflation, rate of income growth, inheritance, liquidation of surplus assets etc
Let’s take the case of Mr X, and understand exactly how soon he will be in a position to retire.
| Current Age: | 40 years |
| Retirement Age: | 60 years, or as soon as possible |
| Expected life: | 80 years |
| Inflation: | 7% pa |
| Current Income: | Rs 50,000 pm |
| Investment budget going forward: | Rs 10-12,000 pm |
| Retirement Income Required:(accounting for inflation & reduction in lifestyle expenses) | Rs 75,000 pm, post tax |
| Post retirement investment return: | 9% |
| Existing Savings | Rs 10 lakh – earning approximately 12% pa |
|
Strategy |
Retirement Age |
Corpus needed at desired retirement age (allowing for existing savings)
|
Amount to be invested each month hereon and earning approximately 14% pa |
Viablility |
| 1 | 45 | Rs 254 lakh | 271,000 | This is far more then what he earns and hence this is not viable. |
| 2 | 50 | Rs 228 lakh | 75,000 | This is again more than what he earns, hence this is not viable and he cannot retire at 50. |
| 3 | 55 | Rs 200 lakh | 23,000 | This is a possibility but he will have to prune down his current expenses and increase his retirement planning budget. |
| 4 | 58 | Rs 181 lakh | 11,000 | This is a possibility and he can retire at age 58 and not wait until 60 which would have been the case otherwise |
| 5 | 64 | Rs 0 lakh | 0 | His existing savings would suffice hence if he chooses to work till he is 64 the possibility is very strong that he does not need to save anything for now and he could use his budget for other goals or for simply buying luxuries as he pleases |
What does the above table mean?
The earliest Mr X can retire is at 58.
This can be preponed if:
- He has either more funds to invest.
- He has more existing savings.
- He manages to increase his income by a change of job or by taking up additional work.
If Mr X chooses to work till 64 he can use his current savings potential to fund other life goals or simply enjoy that money.
Please note that the situation is quite dynamic, and it is important to have a viability analysis done regularly to ensure that there are no hiccups at or very near to retirement.
This is a gr8 eye opener for every one
gud one n very gud eyeopener