Retirement planning

1) Take control of yourself

Before planning to retire early, you first need to take control of yourself. Simply because once that is done, half the battle is already own.

"If you are unable to save enough, you should try to simplify your life. Stop trying to keep up with the Joneses and rediscover how the simple things in life—like visiting with friends, reading, walking, and spending quality time with your spouse and kids—can be as enjoyable as your latest hi-tech purchase. Choose to live with less so that it doesn't cost so much to live," advises Larry Ferstenou, author of 'You Can Retire Young', in his book.


2) Gain financial independence

Gaining financial independence is a pre-requisite to retiring early. For this you need to start early and plan well. First, begin with identifying and analyzing your expense requirement post-retirement, study your existing portfolio and savings capacity, and then chalk out a complete solution for yourself, taking in consideration your other financial goals. The impact of increasing life expectancies as well as inflation should also be taken into consideration.

"You should never overlook the impact of inflation. While it may be easy to live life easily with your surpluses at this stage, you may not be able to sustain it for long unless your monthly returns from investments keep increasing to offset rising costs of living," warns Delhi-based investment consultant Ashish Kapur.

3) Increase allocation towards savings

There is always a tendency to increase your lifestyle expenses with increase in income. However, while still in your earning years, increase your allocation towards savings. Remember, a penny saved is a penny gained! Financial planners suggest that at least 25 per cent of your income should go towards savings. You should also invest the savings wisely. Have an appropriate asset allocation and let the money work for you.

In the early stage one should be having aggressive asset allocation and invest regularly in equity or equity-based mutual funds. Debt-based asset get automatically accumulated to some extend through employee provident fund. As one moves closer to the retirement year, one can reduce the allocation towards equity and reduce the risk. Post-retirement, the risk should be minimized.


4) Get the benefit of compounding

Try to start investing early to get the maximum benefit of compounding. One basic thumb rule is that money can double every 6-7 years if it compounds at the stock market's average return of nearly 11-12 per cent annualised over it's lifetime.

In other words, a SIP of Rs 10,000 invested per month for 20 years, that earns 12 per cent return, can easily give you your first crore.

5) Go for a long-term plan

Try to go for a long-term plan and stick with it. "A plan prepared on sound understanding and with logics intact and being reviewed by your financial planner at pre-set periodic intervals as half yearly or annually would help you shape your financial life the way you want. Slight deviation from the expected result may be possible but with financial planning, one is expected to be on the right track and achieve the desired goals with much ease and convenience," says Rajiv Deep Bajaj, MD, Bajaj Capital Ltd.

6) Work out alternate scenarios

Nowadays on account of higher incomes in both business and profession, people have the power to plan early retirement. In all cases, however, an individual's means may not provide for realizing a vision like this.

So, work out alternate scenarios to have a reality check and make the right decision in time.