Skip to main content

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.

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now