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Should You Retire Early?
Early retirement is not for every one, and it is not like everyone need to retire early. Don’t blindly follow the bandwagon and join the F.I.R.E (Financial Independence Retire Early) cult. You subconsciously know who you are, and whether early retirement makes sense for you. Here are some reasons why you may not want to retire early.
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How Long Will My Money Last?
How long will your money last? The oft given cliched answer is -- it depends. It is true if you want someone to answer for you. But if you put some effort, you will be able to answer the question yourself. The only problem is that you should be able to make some good estimates of your expenses, inflation and investment return long into the future.
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How Much Do You Need To Retire?
I have touched upon this point briefly in step 5 of How to Retire Early in 5 Steps, but I thought I should expand a bit on that. Most people suggest the 4% rule, which basically states that if your expenses can be met by withdrawing 4% of your corpus, then that should be the corpus size. For example, if you need Rs. 50,000 per month to meet all your expenses comfortably in your retirement, then your corpus needs to be Rs. 50,000 * 12 / 4% = Rs. 1.5 crores. But does it really work?
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How Soon Can You Retire?
Like I mentioned in the previous post, there are really just two variables that you can control, which determine how soon you can retire. They are your expenses and savings. Remember step 4 of How to Retire Early in 5 Steps? Plan a Simple Retired Life. The lesser the expenses today, the less it will be in future after adjusting for inflation. If you like a rich lifestyle today, then as the years go by, not only will inflation cause the expenses to go up, but you will want higher and better lifestyle which adds up. Your savings will not be able to handle the burden of your expenses. The less your expenses, and more your savings, the earlier you can retire. But how soon? That is the question that I want to answer in this post.
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Would You Rather Have Freedom or Stuff?
One of the most important trait that people who want to retire early need to practise is minimalism. If you keep buying more stuff, you will take longer to retire. I made this mistake early in my life, but I was not too late to correct course. Especially because some of the things come with a burden of lifetime maintenance; for example owning a car. The constant repairs, upkeep and insurance keep adding to your expenses. Not just vehicles but every single thing that you own, ends up owning you. So if you would rather have freedom, you have to give up stuff. This is in continuation of step 2 of How to Retire Early in 5 Steps — Rid Yourself of Debt and Save Aggressively.
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Borrow From Future or Gift Yourself in Future?
Would you borrow a gift from the future or would you rather save up for a surprise gift in the future? That is how taking a loan vs saving works. If you take a loan, then you are borrowing money from your future. If you are saving, you will gift yourself a surprise in the future. Make your choice. In this post, I want to elaborate a bit more on step 2 of How to Retire Early in 5 Steps – Rid Yourself of Debt and Save Aggressively.
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Funding Children's Education
After reading my earlier post on How to Retire Early in 5 Steps, some of my friends asked me if it is realistic to be able to achieve early retirement given the soaring cost of children’s education. So I thought I should elaborate a little bit, which is what this post is all about.
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Math Behind Financial Planning (FV, PV and Annuity)
Saving early is one of the first steps you need to take when you are planning early retirement. I talked about it briefly in my earlier post, but wanted to elaborate a little bit and may be show a few formulas along the way to help you better understand how starting early and compounding make such a huge difference. This post will help you do your own financial planning if you are so inclined. I did not use a financial planner and always preferred to do it myself. So if you are like me, you might enjoy it.
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How to Retire Early in 5 Steps
Achieving early retirement is not really as difficult as most people think. But it certainly is not for everyone. Some may not like not being able to work and stay at home, some may not be ready for the simple retired life, some may feel anxious about finances (even if their corpus is as big as they wanted it to be). Going into early retirement requires the stomach to handle all those and much more. For most, it may be fulfilling to work and keep themselves busy that way. For the rest, these 5 steps will help you get started on your journey to early retirement.
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Be Strategic About When to Quit
While I was able to reach my financial goal by end of 2017, I actually retired on Jun 29, 2018. The timing of my exit has nothing to do with my finances, it was just strategic. And I will tell you why it is important to time your exit properly.
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