- Invest in equities to accelerate your portfolio growth
- Make sure you are sufficiently insured if you wish to retire at 40 because a single uncertainty like illness, accident or theft could wipe away all your savings and end up jeopardizing your retirement dream.
- You need to invest more than 50% of your current monthly income into your retirement plan to retire sooner
If there has ever been a moment of epiphany in your life; when it hits you how short life is to keep toiling day and night at your workplace, you are not the only one.
Stop and question yourself- Is this how you want to spend your future life? If the answer is ‘no,’ you need to start investing wisely. Why wait until your 60s to live your dream of exploring the world or starting your own venture? Let us show you how an early retirement is not just a possibility but an opportunity to live your dreams.
Investments are quite tricky and require your most attentive decision making- because even one single prudent investment can bring about a massive difference to your net worth. You will have to take into consideration the potential and duration of returns as well as the associated risks.
If you start investing for an early retirement, you will benefit from the power of compounding over the long-term.
Allocate more to equities
Experts believe that equity investments tend to outperform other asset classes over long-term. It is unlikely that any asset class will be able to beat inflation as well as equity does. Does that mean you start investing directly in the stock market? Well, investing in the stock market requires an understanding of sectors, stock potential, and market drivers. Above all, you need time and effort to keep reviewing your portfolio The most suitable way is to invest in a diversified portfolio of stocks, which are managed by fund managers. One such product is Unit Linked Insurance Plan (or ULIP) which offers various funds to choose from basis your risk appetite. They also offer the dual benefit of investment returns as well as life insurance cover.
Spend less today to retire sooner
Experts believe if you wish to retire by 60, you need to invest 15–25% of your monthly income for your retirement savings. But in your case, you dream to retire in your 40s. Therefore, you need to invest more than 50% of your current monthly income into your retirement plan. Calculate your current expenses and factor in the retail inflation to arrive at sum you would need at your retirement. Find out the amount you need to invest now in order to be able to retire at the desired age.
Here’s an example: At 25, your current expenses are Rs 15,000 per month i.e. annual expenditure of Rs 1,80,000. Now assuming inflation at 6%, your annual expenses after 15 years, will be around Rs 4.31 lakhs. Therefore, if you wish to retire by 40, you need to retire with a sum of Rs 1.93 Cr to sustain another forty five years i.e. till you turn 85.
The question is how much you need to invest in order to build a corpus of Rs 1.93 Cr? If you invest in equities, assuming 15% return annually, you need to invest at least Rs 28,513 per month to arrive at this corpus. If returns are at 12% annually, you need to invest at least Rs 38,249 per month to arrive at this corpus.
Invest more, spend less in order to achieve your goal.
Diversify your portfolio
Your portfolio should be a right blend of products. In fact, a well-built portfolio is not only about investing but also about insurance. Make sure you are sufficiently insured if you wish to retire at 40 because a single uncertainty like illness, accident or theft could wipe away all your savings and end up jeopardizing your retirement dream. Choose based on suitability and thorough understanding of the product.
Life Insurance products with savings and investment component are also suitable to save and build wealth for the future, systematically. They are ideal long-term savings tool that can help you meet your financial needs after retirement.
Stick to some traditional products too. Consider investing in avenues like Public Provident Fund or other conventional instruments too. In case of such products, you cannot withdraw investment till the lock-in period is over. In a way, the lock-in helps you to avoid mid-way disturbing the long-term plan.
It would be wise to start investing soon if you want to retire by 40. So start today!