Rakhi is 25 years old, and she is stressed that she has to work till 60 and plan for her retirement.
But…. Do you know there is no such law or compulsion to work until you are of age 60 or 65?
You can retire in your 40s too. Yes, I am not kidding!!
How can you plan your retirement in your 40s and not your 60s?
The answer is “FIRE”.
Rakhi to me – What? If there is a FIRE🔥, will I be able to retire early?
Me: Yes, absolutely! Basically, FIRE is a short form for “Financial Independence, Retire Early.”
The goal is to save and invest more, somewhere between 50–75% of your income, so you can retire sometime in your 30s or 40s.
That’s right! You need to save at least half your income.
The concept of FIRE is simple: you can retire early if you focus on extreme savings and investing to generate the required wealth. Before retiring, the goal is to pay off all your debts and begin generating extra income. As a result, you may need to practice economical living today in order to live comfortably later.
Now, the big question is “how much money should you have after you retire?” The concept of a safe withdrawal rate, which was introduced by William Bengen in 1994, can be used to solve this question. The 4 percent thumb rule is what it’s called. He recommends that your retirement fund be 25 times your annual expenses, allowing you to withdraw 4% of the money each year. This provides you with an indication of how much money you’ll need in retirement.
Learnings from FIRE
The FIRE movement has a lot to teach us about retirement planning and saving. Before you apply the concept, thoroughly review the following topics.
- Start saving for retirement as soon as possible. It is easier to reach your goal when you have a clear goal in mind.
- Keep an eye on your spending. The less you spend, the more money you’ll save.
- Have multiple sources of income. Working part-time can help you save more money.
- Make it a habit to save and invest. FIRE recommends allocating a significant amount of your income to this goal.
Why FIRE isn’t for everyone?
Proper retirement planning is important, but one strategy does not work for everyone. One of the FIRE theory’s flaws is that it assumes you have a lot of money. Without it, there is no chance to accumulate significant wealth before the age of 40. Furthermore, the 4% rule only works if you spend the same amount each year. It does not account for inflation or financial emergencies. Some of your goals, such as going to foreign countries or purchasing expensive items, may have to be discarded. As a result, FIRE isn’t for everyone.
But, you can still retire early!
Use a Retirement Calculator to make calculations as per your need and financial situation.
For example, Rakhi is a 25 years working individual in the corporate world. She is earning enough income to live comfortably. However, she is planning to retire early by the age of 45, as she doesn’t want to hustle for long years in the corporates.
Current age = 25
Retirement age = 45
Life Expectancy age = 80 (She is expecting she will live up to age 80)
Inflation Rate = 8%
Rate of Return earned on investment = 16%
Monthly Expenses = ₹10,000
The amount required at the time of retirement is ₹2.22 Crore. And for this, she needs to save every month just ₹12,800. Ufff!! Too many numbers 🙈 Don’t worry, it’s simple with LXME’s Retirement Calculator. You just need to enter a few values and click on calculate, that’s it.
But where should you invest?
Chillax!! You don’t need to do thorough research. After the calculation, just click on See Recommendation and you will get your answer.✨
Before you begin your retirement planning, keep the following factors in mind to retire early:
- Define retirement🙆♀️: Decide how you want to spend your golden years. You must determine whether you want to completely stop working or do something you enjoy.
- Calculate your expenses💰: To begin, you’ll need to make an estimate of your annual expenses. Herein, you need to take a close note of every outflow. As it will be simple to plan your retirement once you have an exact number on paper.
- Cut down your unnecessary expenses✂️: The only way to develop a significant retirement fund is to save and invest consistently. As a result, you must drastically reduce your monthly expenditure and strive to live a comfortable lifestyle.
- Make investments🪙: You won’t be able to save enough for retirement without some form of extra income. As a result, you should invest in financial products such as Equity Mutual Funds that can provide inflation-beating returns in the long run.
- Pay off debts💳: Before you turn 40, make sure you’ve paid off all of your debts. So, you will be debt-free and worry-free.
To retire early, you must first change your perspective. You must think that retirement means the start of your life, not the end of your work. So, don’t wait till you’re elderly to retire; do it now, while you still can. If you want to retire at 40, your goal should be financial freedom.
So, at what age do you want to retire? And how much do you need to invest?
Do let us know in the comment section below.
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