Don’t attempt early retirement

I have come across a lot of articles on early retirement by 40 something. People are doing a reverse calculation of amount required to retire at their desired age. Monthly expenses, lifestyle, inflation all these aspects are taken into consideration while deriving the retirement corpus. There are free and downloadable templates available to make this task easy for you.

People want to retire early so that they can enjoy a life they want to without compromising on lifestyle. It is a dream of all humans, including me. But one thing is sure taking early retirement is not a piece of cake and certainly not available next door.

Early retirement is a scarce commodity and only few can dream about this. In order to realize this dream, your action should be accurate and consistent. People dream of early retirement, but their actions are not in line with the final goal (early retirement). Hence most of them fail. But for those who pass and attain early retirement are also facing challenges.

Why you should not attempt early retirement

  • Retirement @ 40 something is illogical

Yes! You heard it right. Retirement at 40 something is not the right age. Here’s the problem: People are living longer than ever, but the average retirement age has remained static. Pension funds have been unable to keep pace. In the coming years, life expectancy will go beyond 100 years. Even if I take 80 years and you get to retire at 40, there is a half of your life still there without any stable income.

On the other side average return on investment is significantly lower. Which affects the retirement corpus and your set goals. There is no guarantee that your corpus will be sufficient for your remaining life. You must have some plan of generating income after you retire at 40. But this income may not be sufficient to survive for remaining 50% of your life.

Medical expenses are increasing at a higher rate

Most people talk about reducing their expenses after retirement. However, you should be ready for the opposite. The medical expenses go up exponentially after retirement. I am sure you must have taken medical insurance for your self and family while calculating your expenses after retirement. These expenses are inevitable and will increase at a higher rate. If you are going to retire in 10-15 years of time, with no medical cover, and assuming an inflation of 6% in medical expenses for next 40 years, the total amount would be somewhere around Rs. 10-20 crores for one person. You can add Rs. 5-10 crore for your spouse.

Medical science will advance a lot in next 25 years. Organ transplants and heart transplant didn’t even exist 20 years before. These are life-saving treatments but costly affairs for the common man. 1 crore would be relatively small amount 20 years from now. Just think what was the value of 1 lakh in the year 1990 and what is it today?

Assuming you retire at 55 years of age and live till 95, you will have to survive 40 years without any monthly pay cheque and lot of medical expenses.

  • Do your math

Do you have any idea of how much money you will require retiring? If you retire today, you need 50 times your annual expenses as retirement corpus in liquid assets (bond, stocks, fixed deposits). If your annual expense is INR 5 lakh per annum, you need Rs. 2.5 crores. If your annual expense is INR 20 lakh per annum, you need Rs. 10 crores to retire today.

30-50 times annual expense is the broad range required at retirement. 30 times is more aggressive, and has less safety in case something adverse happens, while 50 times annual expense is a more conservative estimate.
If your annual expense is 10 lakh per annum (most middle-class families), you must be thinking about accumulating Rs. 5 crores by retirement. However, in the formula of 50 times annual expense, annual expense is of the year when you retire.
So, if you retire 15 years from now, your expenses may have gone up 4 times by then (@9.5% inflation), and so would the size of your retirement corpus. It means, your expenses would have quadrupled to Rs. 40 lakhs in 15 years time and you require Rs. 20 crores for a safe retirement, unless you are ready to begin old age.

Still, you want to retire at 40 something?

  • Don’t burden your children

By retiring early you are becoming a burden to your next generation. You have done your own calculations for retirement corpus to survive for the remaining life. This indirect says you will stop contributing to your next generation. It will become more difficult for them to start their career and pursue their goals. What if your child will come to you and tell his desire to study abroad. You might not have considered this expense in your retirement calculation. You will give away a big chunk of your corpus for your children ‘s dream and career.

This is just one example, there could be many such unexpected expenses may arise in the later age. If you are not able to meet this requirement, you will have to compromise on your child’s career. No parents want this to happen. Right?

Conclusion

Don’t be a daydreamer and chase something which is not good for you in long run. Financially inactive is not a good sign even for rich people. My advice is to be financially independent and not to retire early.

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