How to Plan Early Retirement at 50 | Getmoneyrich.com

I personally would like to retire by the time I am 50 years of age. But in order to do this I should build a source of passive which will continue to flow-in even though I have opted for voluntary retirement. But before I will be 60, I will not get the benefits of senior citizen, so I will have to manage both my income and tax liability. I must comment that planning retirement at 50 is not easy for a common man, but it is possible if we plan early in our life. No I am approximately 30 and I have almost 14 years in my sleeves. I will have my savings in provident fund available with me at 50 but for sure this will not provide sufficient passive income to lead a financially independent life. So a different strategy is required to plan early retirement at 50.

The beauty of finalizing a strategy for early retirement at 50 is that the solution is very simple. Just keep yourself sufficiently motivated to save more and more. The income you are making each month from your job should planned in such a way that needless spending is minimized. Idea is to save more and more. Why I say that this strategy is simple because this is totally in your control. The only this required to increase your savings is careful planning. The difficult part of this savings to keep it going year after year till you achieve financial independence.

The next step after ensuring that saving is flowing-in, is to invest intelligently your hard-saved money. Yes investment of money is essential. If you are only savings it is not sufficient. In order to effect premature retirement at 50, you must take advantage of compounding of money. The compounding of money is only possible if you give your money the power to multiply/grow. Technically speaking if your savings is yielding either (1) interest income, (2) dividend income, (3) capital appreciation or (4) rental income; only then you will benefit from power of compounding.

Let us take an example to understand the power of compounding. I need to build a investment portfolio of Rs 1.0 crore by the time I am 50 years of age. In order to achieve this target of building Rs 1.0 crore portfolio, I need to save Rs 41,700 each month for next 20 years. Now consider this, if I am investing intelligently in options which is giving me returns of 12% per annum for time horizon of 20 years, then I need to save and invest just Rs 10,350 each month to build an investment portfolio of Rs 1.0 crore.

?	Only Saving	With Investment
Per Month Saving	Rs 41,700	Rs 10,350
Per Month Investment	Rs 0	Rs 10,350
Interest	0%	12% per annum
Time Horizon	20 years	20 years
Investment Portfolio	Rs 1.0 Crore	Rs 1.0 Crore

For me the definition of financial independence is having Rs 1.0 crore in my bank FD by the time I am 50 years of age. Why I am so fascinated with this value of Rs 1.0 crore? If I put this Rs 1.0 Crore in FD for 10 years today, the interest I will earn interest income at rate of 7% per annum (after tax). Which means annual income amount of Rs 700,000 (Rs 58,000 per month).

But there is a very big problem with this assumption. This problem is a very big hindrance to my plan of retirement at 50 years of age. This problem is nothing but inflation. The worth of these Rs 58,000 today will not be the same after 20 years. If we discount Rs 58,000 with average inflation rate of 6% per annum over a period of 20 years the true value of Rs 58,000 will be not more than Rs 17,000 per month. So it means, if I intend to earn Rs 58,000 per month after 20 years, ?I need to save much more than Rs 1.0 crore. My actual savings in next 20 years should be Rs 3.4 crore and not only Rs 1.0 crore. This value of Rs 3.4 Crore can be reached in two ways, (1) either I increase my level of savings from Rs 10,350 per month by 3.5 times or (2) I find suitable investment options that will pay me returns higher that 12% per annum.

Conclusion

The challenge of going for premature retirement at 50 is immense. This is the reason I will suggest that the earlier you start the better it will be for you to achieve early retirement. Always remember to save sufficiently to fund your retirement plans. Right from the days when you get your first job in 20?s, make sure that you start funding your retirement fund. Achieving early retirement is tough but it become a piece of cake if one will start early.

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