Personal Finances: How To Plan For Early Retirement Bombay News



Planning for early retirement is an art that depends entirely on how you plan your finances to ensure your tax independence. However, simple savings may not be enough given the rising inflation and expenses associated with living in retirement without any regular income. If you want to retire early, here are some basic rules.

Evaluate your expenses

The amount of money you will need each month after retirement is more important than the amount you spend now.

Start with essential expenses on food, rent, clothing, transportation, insurance premiums, and money for other utilities. Don’t ignore the loans you’ve taken, check your credit card debt, and work to pay off all your bills, debts, and loans. Planning for a debt-free retirement is essential, which means there is no accumulation of bad debt or enough savings to pay off long-term loans even after retirement. In addition, it all depends on when you want to retire. If you still have dependent children after you retire, you must allocate a sum of money to pay for the premiums for life insurance policies and continuing health insurance plans.

Money requirement

Now that you’ve budgeted for your post-retirement expenses, focus on how much money you would need to retire. There is no set way to measure this, although the rule of thumb is to set aside at least 25-30 times your budgeted annual expenses in retirement as well as enough money to cover at least a year of retirement. expenses. Estimating your needs at 40 or 50 would require you to find out how inflation affects the cost of daily living. For example, your monthly expenses are ??20,000 at present which translates into ??240,000 each year. Share ??2 40,000 by four percent is equivalent to ??60,000,000 per year. This means that you would need ??60,000,000 every year after you retire.

Save and invest regularly

Financial planning is futile without timely action. You need to start saving early to make sure you have enough funds when you retire.

However, saving alone will not help and hence you have to choose from the different investment options – stocks, mutual funds, exchange traded funds, sovereign gold bonds, cryptocurrencies, real estate, deposits. fixed, recurring deposit accounts, post office plans, corporate bonds – available to allocate your money in a way that earns you enough funds when needed. The idea is to see your money grow.

Active investment management

Investing money and then forgetting it is a deadly financial sin. Track your investments and check if your portfolio is sufficiently diversified. For example, you can put your money in high performing mutual funds or stocks if you are willing to take risks and want to build up a large body of work after 15 to 20 years.

However, if you are a cautious investor and cannot handle the turbulent nature of the stock market movement, approach debt funds that generate higher returns than bank deposits without risking losing your investments. The real estate market is expected to explode, with the market now opening up to new business and employment opportunities after the Covid-19 pandemic. With mortgage rates at historically low levels, it would make sense to invest in real estate now and sell it at a higher price later. To save on the money spent on paying medical bills and expenses associated with both pre- and post-hospitalization, you should purchase appropriate health insurance that will cover your treatment expenses.

Finally, never underestimate the importance of a term insurance plan, which would ensure the financial security of your dependents after your death. Choose an amount of term coverage after considering the financial needs of your applicants and your debts, if any. This is especially true if you have taken out a loan which must then be taken over by your applicants.

Personal Finance is a weekly column that aims to provide our readers with relevant and useful financial information.


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