Retiring before the age of 60 or even 50 is a goal for many, but it’s important to understand financial planning and investment options beforehand. To achieve this, savings and investments are necessary. Evaluating your current financial status and investing and saving accordingly is essential.
Retirement Investment Plan: Early retirement is feasible once you reach financial independence, allowing you to maintain your lifestyle without relying on a job. If you’re planning to retire early, here are some essential considerations you should be aware of.
Understanding your financial position is important
The first step is to assess your current financial position. This includes evaluating your savings and investments. Make a list of all your assets and active loans to check your net worth. This will help you know how much you need to save and invest to achieve your retirement goal.
It is also important to check your retirement corpus. This is the amount you need to maintain your lifestyle after retirement. Also consider medical expenses, daily expenses and any other personal expenses. Aim for a corpus that is at least 25 to 30 times your annual expenses.
Investment options for early retirement
Mutual funds, especially equity mutual funds, are a favourite among early retirees as they have the potential for high returns in the long term. SIPs in mutual funds allow regular investments.
If you have market knowledge and can take risks, investing directly in stocks can yield significant returns. It is advisable to diversify your stock portfolio across different sectors to mitigate the risks associated with individual companies.
Real estate remains a favourite investment for many Indians. Rental properties can provide a steady income source after retirement. However, real estate is not liquid, so it is seen as a lifetime investment.
Public Provident Fund (PPF) and Employees Provident Fund (EPF) are safe and tax-efficient options that offer compound interest backed by the government. EPF is especially beneficial if you are contributing while on the job.
Health insurance is also important
Adequate health insurance is very important as medical expenses can quickly deplete savings. Choose health insurance that covers critical illnesses, hospitalization and other medical expenses to ensure financial security against health emergencies.
Apart from this, effective tax planning also maximizes savings. Use tax-saving instruments like PPF, NPS (National Pension System) and ELSS (equity-linked savings scheme) to reduce taxes.
