In India, the traditional retirement age is around 60, but with rising aspirations and financial literacy, many aim to retire much earlier.
Though that may sound like a lofty goal, but with strategic planning and disciplined investing, it's entirely achievable.
By adopting a proactive approach to your finances and investments, you can pave the way for financial independence and early retirement.
Here's a comprehensive guide on how to invest if you aim to retire early:
Set clear goals
Before diving into the world of investing, it's crucial to define your retirement goals.
Determine the lifestyle you envision post-retirement, estimate your expenses, and set a target amount you need to achieve financial independence.
Having a clear goal will guide your investment strategy and keep you focused on the end objective.
Accelerate financial independence
Akhil Chaturvedi, Chief Business Officer at Motilal Oswal Asset Management Company (MOAMC), stresses the importance of accelerating financial independence.
To achieve this, he suggests that individuals focus on high-paying careers or lucrative ventures to ramp up income during the wealth-building phase.
Start early
Time is your biggest ally when it comes to investing. The earlier you start, the more time your investments have to grow exponentially through compounding.
Even small contributions made consistently over a long period can accumulate significant wealth.
Stay disciplined
Consistency is key to successful investing. Stick to your investment plan, regardless of market fluctuations or economic downturns.
Avoid the temptation to make impulsive decisions based on short-term market movements and focus on the long-term growth potential of your investments.
Strategic investments for early retirement
Equity investments
Mutual Funds: Investing in diversified equity mutual funds can yield significant returns over the long term. SIPs (Systematic Investment Plans) in funds like large-cap, mid-cap, and ELSS (Equity Linked Savings Schemes) can be beneficial.
Systematic Investment Plans (SIPs) are an efficient tool for those looking to build a retirement corpus.
By investing a fixed amount regularly, investors can benefit from rupee cost averaging and the power of compounding.
However, one should have the risk appetite and start planning early.
For retirement, each person will have a different amount they need. For ease of understanding, let's take the crorepati figure.
How much will it take to have ₹1 crore at retirement? The amount needed to invest will depend on two factors — the time when you start investing and the instrument you invest in.
For instance, if a 25-year-old decides to plan for retirement and invests in an equity-linked SIP yielding a conservative rate of 12% per annum, compound interest calculations show that the individual would need to save only ₹2,000 per month for the next 35 years.
This investment would result in a final retirement amount of ₹1.05 crore.
If an investor parks ₹5,000 monthly, they can yield ₹1.07 crore in 26 years with the same rate of interest.
| Starting age | Monthly investment (₹) | Years to ₹1 crore | Expected annual return (%) |
| 25 | ₹2,000 | 35 | 12 |
| 30 | ₹5,000 | 26 | 12 |
Direct stocks: For those with a good understanding of the stock market, direct equity investment in blue-chip companies can provide substantial growth.
Chaturvedi advises investing heavily in equities.
"These investment vehicles offer the potential for significant returns over the next decade or so, bringing early retirement within reach. It's all about maximising growth potential during your working years," he said.
Real estate
Rental properties: Investing in rental properties in growing cities can generate a steady income stream. Ensure properties are in locations with high demand to maintain good rental income.
REITs: Real Estate Investment Trusts offer exposure to real estate without the need for managing properties directly and can provide both income and capital appreciation.
Tax-advantaged accounts
Provident Fund (PF) and Public Provident Fund (PPF): Maximise contributions to these accounts for tax-free returns and safety.
National Pension System (NPS): NPS offers tax benefits under Section 80C and provides a mix of equity, corporate bonds, and government securities.
Other Investment Vehicles
Bonds: Invest in government and corporate bonds for stable returns. Consider tax-free bonds issued by government institutions for tax efficiency.
Gold: Gold has traditionally been a safe haven for Indian investors. Investing in gold ETFs or sovereign gold bonds can provide a hedge against inflation and economic instability.
Implementing the plan
Increase Income
Side hustles: Explore freelance work, part-time jobs, or starting a small business to boost income.
Career advancement: Invest in education and skills that can lead to promotions and higher salaries.
Reduce debt
High-interest debt: Prioritise paying off high-interest debt like credit cards. This can free up more money for savings and investments.
Home loans: Develop a strategy to pay down home loans faster. Prepayment options can reduce interest burden significantly.
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