Early Retirement roadmap: Navigating with Mutual Funds

Retiring early is a dream for many, while it’s a goal that requires careful planning and disciplined investing. The FIRE (Financial Independence, Retire Early) Movement has gained traction in recent years, inspiring individuals to pursue financial independence and retire Early. While traditional retirement plans often revolve around pensions and Provident Fund accounts, investing in mutual fund can offer an alternative route which can help to achieve early retirement^.

^ Early retirement should not be considered as retiring from work when you are in your 40s or 50s. Herein, the term refers to holding a large enough corpus with which you can be reasonably sure to take care of your financial needs for the rest of your life. This sum of money, ideally diversified across various asset classes, needs to be sufficient enough to pay for all your needs in the absence of an income, and very importantly, can provide you the freedom to choose the way you wish to live your life from a financial perspective.

Retirement planning at the age of 60-65 can be a daunting task, while also could result in curtailing one’s current lifestyle. A strategic approach from the early stage of your career is crucial for aspiring to retire early. Here is what you should consider before retiring early.

Some Factors to consider:

Your Current Monthly Expenses
Your Current Lifestyle and whether you wish to improve it
Money to meet sudden emergencies
No. of years upto retirement
Your Current amount of Wealth
Expected Inflation
Expected returns from your corpus. Remember your equity exposure will have a role to play in this.
Dreams in your retired life
Priority to clear all outstanding debts before retirement
Any other anticipated expenses/ pending Goals

It would take a few rounds of discussion with an investment expert for you to better understand your target retirement corpus!

Some Thumb Rules

Rule of 4% - This refers to the withdrawal rate from your retirement corpus per annum. For instance, if you have a retirement corpus of Rs. 4 Crore, then as per this rule of thumb it may be ideal to withdraw upto Rs. 16 lakh a year, which works out to a monthly withdrawal of Rs. 1.33 lakh. Would this be enough for you when you retire?

Rule of 25 - According to this rule, you may need a retirement corpus which is 25 times your yearly expenses at the time of retirement. If you observe carefully, the Rule of 25 is actually the inverse of Rule of 4%.

Keeping the math aside, the key for younger investors aspiring to retire early, is to maintain a balance between one’s current lifestyle and saving for the future. If you are thinking of an early retirement, you may wish to be conservative and keep a good enough buffer while estimating your retirement corpus.

Rule of 72 - Divide 72 by your expected annual rate of return to estimate how many years it will take for your investments to double in value.

Note: There is no guarantee/assurance that the above rules will provide an accurate retirement corpus. Investors are advised seek professional advise before taking any financial decisions.

Plan today for your Early Retirement! Invest in HDFC Retirement savings Fund!