While everyone wants to retire early, evaluate your finances and see if it is viable
Evaluate whether you want to scale back on work or retire altogether; then see at what age you can do this
Pattabiraman Murari works because he wants to, and not to pay the bills. The 44-year-old associate professor at IIT Madras decided that he wanted to become financially independent fairly early. “My dad fell ill and I was deep in debt trying to cover hospital bills. I felt like a failure and never wanted to get into such a situation again," he said. The experience taught him that investing is essential. He started saving systematically, but he wanted to take it further. “I was curious about the prospect of pushing my retirement age lower. Once I found it was possible, I worked towards it," he said. Murari achieved financial independence at 42, just about a decade after he started working.
Most people have had a reason to re-evaluate how long we want to keep working. While quitting your job out of the blue is not really an option, a global trend known as financial independence, retiring early (FIRE) has been picking up. The idea is to take care of all your liabilities like home loans, and provision for long-term financial goals like your child’s education, so that you are free to stop working if you so wish. But is achieving financial independence really a viable idea for the average salaried Indian?
While many consider retiring early, actually taking the plunge is a really big decision. So why is it that more and more people are exploring the option? “People feel the urge to retire early due to their overly demanding corporate lives, which hardly allows them time to take care of themselves," said Shilpi Johri, founder of Arthashastra Consulting.
For others, the reason might be related to pursuing something other than a nine-to-five job. “Many want to pursue something offbeat without having to worry about earning their bread," said Piyush Khatri, founder, Sahastha Financial Consultants.
For some, like Murari, it is the financial crunch that woke them up to the need to achieve independence. Ankit Garg, 32, a Mumbai-based banker, has a similar story to tell. “Even though I have always been financially disciplined, my first wake-up call for proper goal-oriented planning came when I got admission into a prestigious MBA college and was asked to deposit a large amount within 10 days," said Garg. Unlike Murari, however, Garg and his wife Shrishti, who is a teacher, plan to retire when they achieve financial independence by their mid-40s. He plans to use his free time to start a mobile school for street kids.
Having enough saved up to cover all expenses and liabilities well in advance is easier said than done. But advantages like having dual income or fewer liabilities might be helpful. “It will be easier to retire early if you are single and don’t plan to get married and can commit a higher percentage of your salary towards retirement," said Khatri.
But even with a child to care for, Murari found a way. “I was able to invest two-three times of my monthly expenses. I did not take on additional debt and controlled my expenses even as my income grew," he said. Close to 60% of his assets are in equity mutual funds; the remaining is in the NPS and a small portion in the PPF. “For the first five years, returns from equity were zero and almost overnight it zoomed up," he said.
Garg is also a strong believer in equity investments. “All my long-term investments are in equity-linked instruments. Half of them are in direct equity and other half in equity mutual funds equally deployed across the large-, mid- and small-cap categories," he said.
Time to decide
Rajaraman Kumbeswaran, 54, is a Chennai-based financial adviser who was able to achieve financial independence by the age of 42. He had started investing in the stock market when he was around 24, but it took him time and research to understand the market. His career took him to the US, where he had access to what he describes as the best market in the world, but homesickness plagued him. “I wanted to retire early as I wanted to return to India," he said. He cashed in the stock options his company had given him and started investing in stocks and ETFs. “It was a great time to be in the market. I rode the rally between 1998 and 2001 and converted my income into wealth," he said.
Though Kumbeswaran had planned to return to India by 41, he was able to achieve it by 42. All his major financial goals were taken care of, but he did not want to retire entirely. After he returned to Chennai, he decided to become a certified financial planner.
Starting early can give your corpus the gift of compounding, but according to Amol Joshi, founder, PlanRupee Investment, it is less about age and more about the stage one’s career and finances are in. “Retirement is about not wanting to work for money. This can happen when you get a clear idea about expenses towards your life goals, which can happen only after a certain age, say 35-40," he said.
Not for everyone
As tempting as it might be, early retirement is not everyone’s cup of tea. Manikantan Raman, 43, a Gurgaon-based professional who works in engineering and construction, decided that he wanted to retire by 50 as the stress and schedule of his job did not let him have much of a personal life. But when it came down to working out a financial plan, the reality hit him.
“I realized that it was not feasible, so I extended it to 55, then eventually to 58," he said. He also saw people around him suddenly lose their sense of purpose when they retired, and he didn’t want that to happen to him. Now he is considering slowing down his career after he turns 53.
“These are not the decisions to be taken on a whim. I have known people who have decided to stop working or take a long sabbatical, and have eventually decided to return to the workforce. But the longer you stay away, the more difficult it gets to return," said Deepali Sen, founder, Srujan Financial Advisers LLP. According to Sen, unless there is an alternative source of income, like a business venture or rental property, or you are willing to be extremely frugal, it is difficult, if not entirely unviable, for a salaried individual to become financially independent before 60.
It is important to evaluate whether you want to scale back on work or retire, and to keep your options open about what age you can do this at. While there is no formula that will work for everyone, the way to look at achieving financial independence is to consider your inflows and expenses and how much you will need to cover your retirement years. While owning property, being debt free, and so on does help, some basic guidelines like starting early, spending judiciously and investing in equities can take you closer to shaving time off your working years.