10 ways to retire early and rich

The mindset of today’s young professionals is changing radically. They would like to have a semi-retired life in their late forties or early fifties by taking up a hobby instead of a regular job.

Somewhere within all of us, there is a dream to reach a point in life where we have enough wealth to be able to choose the work we would like to do and the pace at which we would like to work, if at all we feel like working; a point also referred to as financial freedom. Financial freedom is also interpreted as being able to spend whatever amount you like, on whatever things you like, month after month.

Here is a step by step guide to retire early.


1. How long do you expect to live?

First of all, you need to figure out how long are you likely to live. This is going to be the starting point for your retirement plan. This you can decide by your health history and your family health history.

2. Will you run out of money?

You need to accumulate enough money required to live up to that age. You need to calculate the corpus amount required for retirement based on when you want to retire, how much you need to spend every month after retiring, inflation, tax, investment returns etc.

There are two things which can make you run out of money in between. One is inflation and the other one is medical expenses at old age. So you need to be very careful in factoring inflation when planning for retirement. Also you need to be adequately covered with the right health insurance policies.

3. Retirement corpus break up

You need to divide your retirement corpus into two portions. One portion of it is the corpus required to retire at the regular age. It could be 58 or 60. The other portion is the corpus required to live between the early retirement and the regular retirement. Say if you want to retire at 50, what would be the corpus required to live between the age of 50 and the regular retirement age of 58 or 60.

First you need to accumulate money for your regular retirement. Then you need to proceed to accumulate for your early retirement. This way you break your targets and it psychologically gives you a lot of comfort in achieving early retirement.

4. Don’t fall for get-rich-quick schemes

To retire early, definitely you need a sizable corpus. Don’t look for any short cuts and get-rich-quick schemes. Only with the increased risk comes the increased return. If any scheme assures low risk and high return, then it is going to be another scam. So stay away from those schemes.

5. Don’t fear stocks

In order to retire early you need to consider investing in a well-diversified portfolio for long-term. Diversified equity mutual fund schemes are a good bet. By investing in a diversified equity portfolio you will be taking a calculated risk and not just a blind risk. Equities will beat all other asset classes in the long run. So it is an important option for those who want to retire early and rich. Reduce your annual cash requirements post retirement.

The monthly income required after retirement is going to be an important criteria for deciding the retirement corpus. If you are comfortable with lesser income you can retire sooner. So you need to be careful in drawing up a budget for cash requirement post retirement.

6. Investigate a better return on your savings

Better return on your investment portfolio will help you in retiring early. So maximize the return on your portfolio as far as possible.

7. Cut your current spending so you can save more

Money spent could easily have been money saved. Spend less; save more; invest smarter and retire sooner. There are a number of ways to spend smarter to save more.

8. Earn more now

Time is money. Don’t waste your time.  Invest your time in revenue generating activities. Apart from your regular income source, there are other opportunities which you can exploit. You can create blogs; you can be a freelance writer; you can do internet marketing. There will be numerous opportunities based on your knowledge and skills if you take time to think and implement.

9. Take advantage of tax-deferred opportunities

Tax deferment is an important tool for early retirement. Tax deferment means less tax now. If you pay less tax and you will have more money to save. You need to pay tax on fixed deposits or FDs on maturity even if you renew them. Income funds and monthly investment plans or MIPs could be a better alternative to this. You need to pay tax only when you actually redeem.

10. Find out some ways to have an income

Even after retirement you can have an income by way of a hobby or interest. You need not work in a regular schedule. You could be a trainer, a blogger, a consultant, or an advisor in your chosen field. It generates money while keeping you engaged after retirement. One of my clients has written a book and he is able to generate income from the copyright of that book year after year.  If you are able to generate this kind of income, then you can retire early.

Retiring early is possible for each and everybody. You need to start planning for it a little in advance. Professional assistance from financial planners will be of definitely useful to you, if you desire to retire sooner and retire richer.

K. Ramalingam is the chief financial planner at Holistic Investment Planners, a leading financial planning and wealth management company. The opinions expressed here are the personal opinions of the author. NDTV is not responsible for the accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.