“What do you mean enough?” were the words of my manager when I called him on the 28th of Feb 2022 to say that I wanted to hang up my boots. I had just told him that ‘I’d had enough’ and this response was therefore very natural and unassuming. But little did he know how profound his words were. These words were the very foundation of what I had been working on for over 10 years now.
It was based on the very principle of ‘having enough’ that I had been planning an early retirement. Planning for a time and day when I’d have just enough money to hang up my boots, without compromising on my existing lifestyle. Planning for a time when I’d be able to leave corporate employment to pursue the things that I really enjoy…a time when on every waking day I could decide what I wanted to do, whom I wanted to meet, where I wanted to eat and even how fast I felt I wanted to run. That day was nigh and I felt liberated having hard-earned my financial freedom at the ripe age of 44, a whole 21 years after my first job.
To many, early retirement is almost unthinkable. Some believe it’s too far a stretch, a goal that’s almost impossible to get to. And to many others, it’s the philosophy itself that does not work – “there’s no such thing as enough money” they’d say. “We will keep earning till we drop.”
Yet if you are one of those who’s willing to see value in the benefit of having more time over more money, value in a more balanced way of life free from the daily stresses & strains, then I can assure you that early retirement is very achievable if you plan ahead.
Now naturally you’re wondering, how did he do it? What is the secret ingredient? And what do I need to do?
Before I share some of these details, it’s important you understand what early retirement stands for here. Early retirement is not about doing absolutely nothing once you’ve quit your primary form of employment or income. It’s simply about earning the freedom to choose what you want to do with your time every waking day without having to worry about how much you earn from it.
What’s my story morning glory?
It was in Jan 2011, just after the birth of my first daughter that I had decided I didn’t want to remain in corporate employment forever. I was keen on a more balanced lifestyle with plenty of time for family, friends, travel, sports and the like. I knew I had to plan harder and better if I wanted to really do this.
There were two aspects to sort out
- Building a financial cushion – I knew I needed to save money much more aggressively hereon
- Finding an alternate ‘thing to do’, something that I enjoyed, gave me flexibility of time, and possibly a little post retirement income.
By then I had already spent about 7 years learning financial planning at the likes of HSBC Asset Management and Axis Asset Management in Mumbai and London. And for as long as I could remember, I had been using that knowledge to guide friends and family on how to build wealth, whilst enjoying every bit of the process. It was about then that I figured that financial planning was my alternate ‘thing to do’.
Having identified what I would do after retirement, all I needed now (and this is the more difficult part) was the financial cushion. I put in place a simple 4-pronged approach to speed up my wealth creation.
Here’s what I did…
Step 1: Lots of saving early in life
- I was saving well from a very young age. Having had the fortune of working in a money management firm, I knew very early that a high savings rate was more crucial than anything else in building wealth, even more than what I’d choose to invest in. By the time I was 30, I was investing nearly 50% of my income. I had also started eliminating unnecessary expenses.
Step 2: A good measure of risk taking
- I knew the returns one could get from equity were significantly superior compared to other asset classes like real estate, gold or fixed income. Barring mandatory investments in PF and some tax savings investments in PPF, I was almost entirely (~90%) invested in equity mutual funds from a very early age.
Step 3: Time & patience!
- The final piece was to give this time, lots of it. After having invested 90% in equity I had to have the patience to stomach its extreme volatility. Thanks to the training I had, I knew that I would see the true benefits of compounding only if I gave it time. I gave it a decade!
Step 4: No EMIs. Thank you very much.
- There’s a tendency of us Indians to over-invest in property. And since these are large ticket purchases, it’s inevitably accompanied with large EMIs. My investment philosophy regarding this has been simple – buy property only if you intend to live in it, otherwise invest in financial assets, particularly equity, as the returns tend to be way better. Plus there’s the added advantage of not paying interest on loans 🙂
How does this all add up? What’s the math to retire at 44?
If you’re living in a large metro city in India, your household expenses are probably in the range of Rs 1.25 to 1.5 lakhs per month. The table below will then tell you how much you need to start saving today to retire by 44, without compromising on your current standard of living. Note expenses here include all routine and non-routine expenses including holidays but exclude expenses towards education of one child in India.
|Wealth Accumulated already (INR lakhs)||50||75|
|Of which expenses earmarked towards one child’s education (in India) (INR lakhs)||35||35|
|Balance left towards retirement (INR lakhs)||15||40|
|Wealth needed at retirement age (INR cr)||6.5||4.9|
|Monthly savings needed starting today (INR)||1,32,380||1,92,776|
Inflation assumed at 6% and investment returns at 12% | Life expectancy 85 years
Needless to say, this is a simplistic representation of what you might need to retire early. It’s likely that your individual financial situation is very different and warrants much more detailed planning. There’ll be EMIs that’ll close at some stage, possible inheritance from family, education expenses for kids, medical expenses for ageing parents and a lot of other such variables that need to be accounted for. Plus you’ll need to account for the exact age when education costs will be high.
My submission is therefore this – if you are serious about early retirement, seek help from a financial advisor and put a detailed plan in place at the earliest possible. Without advance planning, it’s unlikely that you can retire early. But conversely, with sound and early planning, and some commitment, it’s a very attainable reality.
Founder – Pagdiwala Investments
AMFI Registered Financial Distributor, Mumbai