Want to retire early? Here is how you need to plan your finances

© Provided by The Financial Express One will certainly have to take risks and need to take exposure to stocks or mutual funds, to get such a massive corpus.

The idea of early retirement sounds exciting – but it also means that with all your financial obligations you will have to stop working at the age of 40 or 45. Industry experts say, it is almost an impossible task at least in India, without proper planning.

Hence, people who want to retire early need to plan their retirement at the start of their careers. Retirement is a long-term financial goal and most people often miss the right time to start investing, which is the start of one’s career. Experts say, retirement planning needs careful planning and requires strict financial discipline.

To start with, the key to a comfortable retired life is planning and saving the right way as early as possible. For instance, if you are starting to save in your 20s for your retirement, you’ll be able to do it better as one has comparatively lesser financial responsibilities than the ones in the 30s and 40s. Hence, the early you begin, the longer the duration you will have to invest. And for people who plan to retire early, starting early will give them a longer tenure leading to generate a larger corpus along with the benefits of compounding. This way you could have enough to retire at just 40.

Additionally, to retire early, one needs to be frugal – using only as much money as is necessary. It is just a small step that will help you retire early being financially stable. To retire early with financial independence, experts say one need not invest to set up a business or invest funds in a scheme that promises high returns, one just needs to maintain financial discipline.

For instance, if one can create an ample corpus by 40 that could fulfil one’s needs for the rest of the life, one can easily afford to stop working and do whatever for the rest of the life.

This, however, can not be achieved by investing in Bank Fixed Deposits, recurring deposits, and other means of traditional investment. One will certainly have to take risks and need to take exposure to stocks or mutual funds, to get such a massive corpus.

Goals like retirement can only be achieved with investments in mutual funds that have outperformed other investments with higher inflation-beating returns. But for that, you need to choose a diversified portfolio. For instance, you can plan your investments in mutual funds through SIPs. Experts say, one can begin a SIP with as low as Rs 100, while in the 20s. The amount can be increased later as your earnings increase. The point of saving since the early days promises greater compounding benefits and helps the money grow.

Starting to invest at an early age comes with various other benefits – for instance, besides accumulating and letting the corpus grow over a longer period, if one has chosen the wrong funds, one gets ample time to rectify.

If a 25-year-old, who plans to retire at the age of 45, starts a SIP of Rs 10,000 – by 45, he/she will have invested Rs 24,00,000. Assuming a 15 per cent interest rate, he/she would get around Rs 1 crore at the age of 45.

Need for PPF

Along with SIPs, the Public Provident Fund (PPF) is another option to look at while investing. Even though PPF comes with an initial lock-in period of 15 years, it is fully guaranteed by the Central government that offers long-term returns at a 7-8 interest rate, compounded annually. Depositors can also extend their investments indefinitely in a block of 5 years, after the expiry of the initial 15-year lock-in period.

For example, if you deposited Rs 1 lakh in a year in the PPF account for 15 years (Rs 15,00,000) at a 7.1 per cent interest rate, after the lock-in period is over, the maturity amount will be around Rs 27 lakh. Hence, experts say investment in PPF can also help meet investor’s long-term financial goals.