When we speak with young earners, there is a common underlying theme. Most of them want to retire latest by the age of 50. Are you also planning on a similar retirement age? Think again.
One of the goals of early retirement is because one wants to do several things which they have missed out during their working life. Things like international travel are starting to become the norm. Health care costs are also increasing. In this context, we clearly see that the post-retirement costs are increasing.
Take a look at the points below and make an informed choice
1. Increasing Life Expectancy:
In the 1960s, the average life expectancy in India was close to 42 years. At present this number is close to 68 and this figure will keep increasing. With improvements in the world of healthcare, the younger folks of today are likely to live longer. With increased life expectancy comes a long period where your savings need to take care of your financial needs.
2. Increasing retirement age globally:
In many developed economies, the retirement age is increasing. There seems to be a distinct shift in retirement age from 65 years to 68 years in several developed economies. This reflects the increasing life expectancy. One should not be surprised if this number increases to 70 (or even higher) over the next couple of decades. Retirement age in India for government employees is closer to 60 now. This figure will increase over the coming years.
3. Expense through life cycle:
As overall lifestyle improves, more and more large ticket expense elements are finding their way into people’s lifestyle. For example, children’s college education expense today is far higher than a few years back and it is increasingly rapidly. People want larger nuclear homes, and travel expenses are starting to explode. Given all these, the build-up of retirement corpus is getting delayed.
4. Post retirement expenses are growing:
One of the goals of early retirement is to do several things which they have missed out on during their working life. Things like international travel are starting to become the norm. Health care costs are also increasing. In this context, we clearly see that post-retirement costs are increasing.
Moreover, lifestyle is constantly changing and improving. As a retiree, you will want to keep pace with the improvement in society.
5. Poor portfolio planning:
We have seen most people not having portfolios which are expected to provide inflation beating returns. During your earning / saving phase of your life, if one does not invest wisely (read : inflation beating returns), there is very little chance of retiring at an age of 50.
What should one do to retire early:
- Starting saving early and save aggressively (at least 20-25% of your post tax earnings)
- Invest in inflation beating assets (equities)
- Watch your expenses, especially on depreciating assets
- Have a proper financial plan. Know how much you need.
- Post-retirement, you still need to invest in inflation beating assets. Understand financial markets well to gain this comfort.