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Tips to Plan Early Retirement

By Amar Pandit, the Economic Times


April 15, 2008

As kids, we always thought adults who work were so lucky as there was no school or college to attend. However, the reality starts when you are in the midst of your career and you realize life as kids was perhaps the best time of your lives. 

Similarly, there is a feeling that retirement could be that ideal period. However, I am not sure if you would feel the same when you managed to actually retire at 45. The grass is always greener on that side of the world. 

It is thus paramount to understand the purpose of retiring early, which might seem trivial now but will have a solid bearing on your retirement. Once you have figured out your purpose, the next thing is to work out a strategy on how to get there. So what does it take to retire at 45?

The first step is to find out the magic number, big enough that enables you to maintain your lifestyle, aspirations, provide for contingencies and finally leave a legacy for your family and the world. Save at least 25 % of your gross income 

The whole point is to set aside a sizeable chunk of your earnings. Besides giving you a retirement income, these funds could be handy in paying off your liabilities or paying for your childrenís education. Donít be stingy but donít live for Saturday nights. Achieving financial freedom means that you plan not only for yourselves but also for your future generations.

Buy a House within your budget. One of the key things you would want to have before you retire is a roof over your head. The sooner you start the better, as you would essentially like to retire without a sizeable loan on your head. 

Have not more than 30% of your net income as EMI towards your house. In the current scenario , it is better to defer buying a house till prices correct meaningfully. Invest 70% or more of your savings into equity 

There is no point looking for lower-assured returns. You can afford to be aggressive with your portfolio at this point of time. A few years before retirement, you can start to move towards debt. The market could certainly tank when you are nearing retirement but if you use debt as your primary engine for retirement corpus, you have no shot at an early retirement unless you are born with a silver spoon. 

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