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You can retire in 10 years. *Conditions apply

Mr & Mrs Achar, both in their early thirties, have a long list of want to-do things post-retirement. While Achar, a private banker, wants to travel a lot and write a book, Mrs Achar wants to look after their children and do some social work. The interesting part, however, is that they want to do this after 10 years, when they plan to retire! Yes, you are right, they do want to retire in their early forties and wish to pursue their passions.

Wait a minute... did we hear similar voices from you too. Alright, so let's see how this can be achieved with systematic planning that includes having reasonably aggressive investment plan, regular savings and may be a slight change in lifestyle to ensure a better and safe tomorrow. Early retirement is essentially a lifestyle issue and is proportionate to one's income and consumption pattern. To retire early one needs have to do careful planning and calibrated thinking.

Before making any retire plan, one should first prepare a balance sheet listing current assets, current as well as future liabilities, annual savings, the rate at which you can increase them, keeping in mind the growth in your income and expenditure, and major investments you plan to make (like buying a car or a house). This list can then be used to arrive at the corpus you would need to generate a regular stream of income once you stop earning.

While planning early retirement one should not just think of generating a regular monthly income. It's also important to keep in mind inflation and hence the need to increase your monthly income even when you are not earning. This can be achieved easily by reinvesting a part of your returns to counter inflation. Inflation indices such as Wholesale Price Index (WPI) or the Consumer Price Index (CPI) do not reflect the actual increase in prices for a particular lifestyle. In one's retirement planning, a figure that is somewhat 30% higher than these numbers is a more realistic estimate, say experts.

Next step is to decide a realistic time frame in which you would be able to build this corpus from returns on your investment. There are several investment avenues such as equity or related products, mutual funds, insurance, debt instruments (like bonds, PPF account) or counter-inflation products like gold and real estate, available in the market for investment. Building your portfolio out of these asset classes for early retirement is like making your cup of tea.

Although there are no standard asset allocation criteria, one can follow the experts who advise to diversify one's portfolio to minimize risk and still get decent returns.

For a person who wants to retire early, suggestion would be to park around 50-60% of savings in regular income products like monthly income plans (MIPs), post office saving schemes, around 30% in equity-related products and mutual funds and the balance 10-20% in insurance products.

While fixed-income avenues, such as FDs, bonds, PPF, post-office saving schemes, give a safe return of 6-9% p.a, gold as an investment has given a compounded return of roughly 10% in the last 10 years. However, over a 20-year timeframe, returns on gold have been a paltry 2.5%. Equities and equity related products, on the other hand, are considered to be riskier but historically have given much higher returns. Take the case of Sensex, which hit the 1,000-mark in 1990. And since then it has given an compounded return of 18.7% This means if you had invested Rs 1,000 in July 1990 (when it hit 1k), the corpus would have swelled to 20,000 by now.

If Mr Achar, who has a current corpus of Rs 10 lakh, annual savings of Rs 1 lakh and expects to increase his savings by 10% every year, invests half of his current corpus (Rs 5 Lakh) and half of future savings (Rs 50,000) in equities and other half in fixed income products, he would get Rs 66 lakh after 10 years which is equivalent to today's Rs 36 lakh. Instead, if he invests all his savings in equities, his corpus would grow to around Rs 90 lakh in 10 years from now, provided he is able to generate a return similar to historical return of Sensex. This 90 lakh would be equivalent to today's Rs 50 lakh if inflation rate is taken to be 6%. This translates into a fixed monthly income of Rs 1.4 lakh at the time of retirement, which is just 10 years from now! Instead, if he wants a regular increase in his monthly income every year, by say 6% to counter inflation, he should take out only Rs 95,000 from his monthly income of Rs 1.4 lakh and reinvest the rest.

One thing that is to be remembered is that speculation has no play in getting good returns. You can't gamble your way to get higher returns. The fallout of this kind of planning can be that you won't be able to retire early and in fact would have to work for whole lifetime.

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