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

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

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 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

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   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
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