The Smartest Safest Way to Retire Early
There are many factors involved when you are working in a job. You will be providing for yourself and your family. The word providing encapsulates many types of expenditures; a roof over your heads (home), enough proper food to keep healthy, medical care, education for the children, family transportation, adequate proper clothing for the family, money for services, and finally money for public transit and family vacations. I purposely left out an area which often goes unmentioned and often forgotten, the creating of a savings account to put away for a rainy day, normal retirement and the great fantasy, an EARLY retirement.
World wide statistics vary in most civilized nations, but the average age of retirement is in the mid 60's. Retirees then count on income from; government provided subsidies, employee-employer matching funds (perks from a generous company), and the money in a personal savings account, all invested wisely to make sure you don't outlive your income/money in retirement.
Here is some good and bad news, interestingly both affect you. Medical science and research are constantly discovering cures to life threatening diseases and all types of illnesses. Just imagine what would happen if they discovered the cure to many types of Cancer in the next year or two. It just might extend life expectancy another decade or two. Now the bad news. How would you be affected financially? Would your retirement funds hold on long enough to handle inflation? Now what?
You feel healthy. You and your spouse are growing older gracefully, but you can't retire because you don't have enough in savings to carry you the extra years of life expectancy. You didn't save enough all these working years and you allowed Want to overtake Need.
So let's turn the clock back to when you were in your 30's or 40's, happy with your career path, earning enough money to comfortably cover your family needs and you start dreaming about the possibility of an early retirement. Then was the right time to set aside at least a forced 20% of your take home pay and open a untouchable retirement savings account. Here is some GREAT news. Last year the Indian Government permitted several companies to issue tax-free bonds to help generate working capital. This also now offers a unique opportunity for investors (like you), to lock in an almost totally risk-free guaranteed rate of return of about 9% for what appears to be a period of time beyond the normal 10,15 or 20 year Bond terms.
For those of you who have been, or just started to fantasize about early retirement, your dream has at least been partially answered. Now the hard work is up to you. You MUST put at least 20% away in that special savings account which will fund these tax-free bonds and other inflation neutral index funds. You have to change you lifestyle buying only what you NEED rather than what you or your family member Wants. You have to learn to stop upgrading to the larger (smart) TV, latest model car, smartER I phone, bigger home, more jewelry (I know, tough to do in India), and taking more extended vacations. Your theme/motto should become "Living Frugally and Investing Wisely."
Tax-free bonds provide an exciting new route to investing a part of your portfolio earning 9%. You are now on your way to realizing your early retirement dreams through the magic of "compounding." The world's greatest investor Warren Buffet claims compounding is his favorite word, and growing tax-free is the perfect path to accomplishing your goal by re-investing the yield and more than keeping up with future inflation. Buffets wife likes to tell this story about Warren. One day Warren came home from work and was surprised that the inside of the house had been painted. His wife was very proud that she only paid 15,000 dollars. He got quiet and seemed to be upset. She asked if he didn't like the colors, he said "Do you have any idea how much that money would be worth if we left it compounding away for ten years?"
I also recommended that you take the excess money earned in the account and reinvest it in diversified, low fee, inflation indexed funds and buy some quality real estate rental property. Use the concept of compounding by taking the money generated by the first group of real estate rentals and buy additional rental properties. Just keep that money working for you until you are ready to retire early.
To utilize your newly available hours in your retirement, I suggest having an additional back-up plan to use your secondary skills and hobbies to not only; truly enjoy what you love, keeping you busy, but also earning some additional income from home or a little office. It probably won't match your former salary, but I promise you'll have much more fun at work, doing what you really love to do, without a boss, or noisy, nosy co-workers and much less ongoing stress.
Summary: How to Plan for Retirement.
1) First decide what age you are planning to do it. It's good to start the planning at least 10 years before your chosen time.
2) Spend lots of time working on a current budget so you know where the money coming in now is going. Then work on a retirement budget knowing full well that for the first few years you will be living frugally and investing wisely. Be sure to include higher costs especially for food, fuel, and healthcare because they will be impacted by inflation until your retirement time.
3) Be pragmatic and conservative guesstimating what your invested savings will yield in money you'll require to live on.
Good luck in your quest to create a new life for you and your family in the "golden years" of retirement.
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