Early Retirement Planning Guide: Secure Your Future Today
Smart Lifestyle Smart Money September 13, 2022
Team LXME
Welcome to our comprehensive guide on early retirement planning! At LXME, we understand the significance of crafting a secure financial future that allows you to retire on your terms. In this blog, we delve into the intricacies of early retirement planning, offering valuable insights, expert advice, and practical strategies. Join us on a journey toward financial independence and learn how meticulous planning today can unlock the doors to an early and fulfilling retirement. Let’s embark on the path to early retirement together, with this guide to early retirement!
Sakshi and Manali are two best friends who started their professional journey at the age of 23. Sakshi is MBA in Finance and Manali is an Engineer. Sakshi was aware of the fact that Retirement Planning should begin as and when you start earning whereas Manali was unaware of the same.
Manali: Why are you planning for your retirement so early? You have your whole life ahead to plan for the same!
Sakshi: So Manali, It’s better to start planning for retirement as when we start earning, this will enable us to create a handful amount of corpus and we don’t have to change our standard of living post-retirement.
Manali: Ohh, can you explain to me more about it?
Sakshi: Sure, Let’s have a look at the same!
What is Retirement Planning?
Retirement Planning is extremely important because the quality of life for a large part of the later years depends on the kind of retirement planning undertaken. This is one of the areas of planning that deserves a closer look, and hence, everyone should be looking at effective ways to plan well in order to enjoy life after the hard work put in during the best years of one’s life. Retirement planning is the process of financial planning to provide for the period after one retires from work. This means the process of saving and building up a corpus that is invested in various asset classes that will result in income and earnings for the individual over a period of time.
Why is it important for women to plan for their retirement?
Retirement Planning is one of the crucial aspects of financial planning that everyone needs to consider. The advantages of early retirementwill help you take care of your post-retirement days and to lead a stress-free life.
> As per the Women and Money Power 2022 survey, only 2 out of 100 women save for their retirement
> It is paramount for women to start planning for their retirement because
- women outlive men
- Women take career breaks due to maternity or family requirements.
- Women earn less due to the gender pay gap
Thus, women need to save 38% more than men in order to maintain the same standard of living post-retirement.
How to go about planning for your retirement?
The steps of retirement planning include:
- Setting retirement goals!
- Calculating the amount of money you’ll need and the sources of retirement income,
- Start investing to build your retirement fund!
Hence, steps to retire early for a person planning for retirement will include building a portfolio that will give investment stability, steady growth, and liquidity for retirement income in the retirement years.
When do you start Retirement Planning?
The sooner you begin investing, the more time your money has to grow. The optimal time to begin retirement planning is while you are in your 20s or 30s as you can leverage the power of compounding. Compounding works like a miracle in the longer term. Along with this, when you are younger, you have fewer financial responsibilities and, hence, can save and invest more.
Manali: Can you explain to me with an example of how compounding works?
Sakshi: Sure, Let’s look at an example for your better understanding.
Suppose I (Sakshi) start investing early while you (Manali) realize the importance of investing late so let’s have look at what amount we invested and accumulated at the time of retirement.
This is how investing 10 years before helped me earn 1.08 crores (2.23 cr- 1.15cr) more corpus. So, starting to invest is the key to creating wealth!
Compounding begins as soon as you start your investment journey and the longer you stay invested, the more your money gets multiplied.
How do you create a Retirement Fund?
1. Calculate the amount required for a smooth post-retirement life.
2. Consider all important aspects like:
> Possible age of retirement
> Life expectancy
> Inflation
> Rate of return
> Lifestyle, etc.
3. Still not sure, use the LXME Retirement calculator!
4. Once your emergency fund is in place, start preparing your retirement fund.
5. The earlier you start planning your retirement, the higher corpus you can accumulate without straining your pockets!
How to calculate the retirement corpus easily using LXME Retirement Calculator?
To perform this calculation, you can simply use the LXME Retirement Calculator & input the values –
Step 1: Fill in the required information such as current age, retirement age which is generally 60 (if you wish to retire early you can put up the value accordingly), monthly expense, and life expectancy.
Step 2: Click on calculate and you will get the corpus required and how much amount you will have to invest for creating the same corpus.
Where can you create a Retirement Fund?
You can invest in various investment instruments according to your needs and goals.
> Your retirement portfolio should consist of a mix of investment avenues in order to earn inflation-beating returns and maintain diversification, and stability in your portfolio.
> You can choose the proportion of equity and debt in your portfolio based on your risk appetite and goals, for example, if you have a high-risk appetite then you can invest a high proportion of your portfolio towards equity and a small proportion towards debt, and the rest portion towards gold or fixed income instruments like NPS, PPF and post office savings scheme which offer you fixed returns.
> Ideally, you should allocate 5-10% of your portfolio towards gold as it acts as a hedge against inflation and market volatility. You can check out LXME Rs. 100 Gold Fund which is targeting a return of 8.3%
> You can visit the INVEST Tab on the App and check out LXME Long term portfolio which is a mix of 75% equity and 25% debt and is targeting a return of 14%.
> If you wish to start investing with smaller amounts then you can look out for LXME Rs.100 Equity Plan or LXME Rs.100 Debt Plan as per your needs.
> Our research team handpicks the best-suited funds out of 2500 mutual fund schemes and narrows it down to 8 diversified Mutual Funds Portfolios while maintaining a healthy risk-to-return ratio. All the portfolios offered by LXME are well-researched and curated by experts.
LXME Pro-tip: While you’re building your Retirement Fund, make sure you take adequate insurance as early as possible and protect your savings from medical expenses!
“The question isn’t at what age I want to retire, it’s at what income”
–George Foreman
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Download the LXME app now to start investing!
Related Article You May Like: – Retirement planning: how to plan for a retirement.
FAQs – Common Questions on Early Retirement Planning
1. The 4% Rule for Early Retirement:
– The 4% rule suggests withdrawing 4% of your retirement savings annually for a sustainable income.
2. Best Way to Retire Early:
– Diversify your investments wisely to balance risk and return.
– Optimize expenses and create a budget tailored to your early retirement goals.
3. Importance of Early Retirement Planning:
Early retirement planning provides financial freedom and flexibility.
It ensures you have ample time to build a robust retirement portfolio.
How to plan early retirement?
To steps to retire early include:
1. Determine your retirement goals and desired lifestyle.
2. Calculate your retirement expenses and savings needed.
3. Maximize contributions to retirement accounts.
4. Invest in tax-efficient options and consider alternative income streams.
What are the advantages of early retirement?
Early retirement offers:
1. More time for personal pursuits and hobbies.
2. Greater flexibility and freedom in lifestyle choices.
3. Opportunity to pursue second careers or passion projects.
4. Potential for better health and quality of life in retirement years.
Explore the guide to early retirement and the significance of early retirement planning on LXME.
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