Retire early: 5 proven strategies for financial freedom

Whether you're a seasoned FIRE enthusiast or an early bird planning for your retirement, this blog offers 5 actionable tips to plan early retirement in India. Read along!

Retire early: 5 proven strategies for financial freedom

Wednesday January 17, 2024,

7 min Read

For decades, the image of retirement in India was a predictable tableau– a grandfatherly figure, nestled in a rocking chair, savouring his twilight years after adhering to the 60-year retirement script. 

But the winds of change are swirling. This timeline is being audaciously redefined by the GenZ and millennials. They are embracing the ‘FIRE’ (Financial Independence, Retire Early) movement, that opens the gate to early retirement.

This isn't just a whimsical trend. A recent surge in success stories and a 67% rise in Indians proactively planning for early retirement, as evidenced by a PGIM India Mutual Fund survey, paint a clear picture–early retirement is becoming a tangible aspiration, not a distant dream.

However, achieving a ‘happy early retirement’ demands more than just wishful thinking. It's an intricate dance of careful planning, calculated risks, and a resolution to navigate the hurdles that may stand in your way. But how to get there?

Whether you're a seasoned FIRE enthusiast or an early bird planning for your retirement, this blog offers 5 actionable tips to plan early retirement in India. Read along!

hands walking stick elderly person

What is F.I.R.E.?

The acronym ‘F.I.R.E.’ has ignited a spark of early retirement in recent years, standing for ‘Financial Independence, Retire Early’. Derived from the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez, it advocates for a lifestyle that transcends the traditional, fixed retirement age. Instead, it empowers individuals to define their timeline, prioritising financial freedom that enables early escape from the corporate treadmill.

This shift resonates deeply with a generation of millennials increasingly disillusioned with consumerism and yearning for autonomy. 

The core tenets of the FIRE movement draw a clear target audience–

  • Work-Weary: For those yearning to reclaim their time and escape the confines of the traditional employment structure.
  • Anti-Consumerists: For those seeking liberation from the treadmill of relentless acquisition and seeking a less materialistic life.
  • Independence Seekers: For those with a deep-seated desire to control their financial destiny and chart their course.

The pandemic acted as an unexpected catalyst, forcing introspection and reevaluation of priorities. However, the current economy throws a curveball at this seemingly idyllic scenario. The cost of living crisis has tightened budget belts across the board, leaving many with less disposable income to fuel their FIRE ambitions. The challenge now lies in adapting strategies and adjusting timelines to navigate this unexpected headwind.

Here are 5 practical, achievable tips to fuel your FIRE goal in India.

Determine your FIRE number

The cornerstone of the FIRE journey lies in identifying the FIRE number. This depends upon three key factors–

  • Current expenditure: An analysis of your present finances across all categories 
  • Projected future expenses: Accounting for anticipated adjustments in lifestyle, inflation, and potential healthcare needs
  • Desired retirement lifestyle: Imagining the level of comfort and activities you aspire to in your post-work life

To determine your personalized FIRE number, you can use online calculators or a  trusted financial planner. This fosters a customised approach, incorporating your unique circumstances and financial goals.

Save

The very first step of early retirement is disciplined saving. Mostly it is advised to dedicate 25% and 50% of gross income towards accumulating your desired retirement corpus. 

Frugal living is the foundational principle of FIRE. This demands meticulous budgeting and cost-cutting measures. Here are some practical strategies to boost your savings–

  1. Opt for public transportation: While personal vehicles and cabs offer convenience, opting for public transport or shared cabs can significantly reduce transportation costs over the long term. 
  2. Pack your lunch: Preparing your meals for work is not only healthier but also significantly more cost-effective than regular dining out. 
  3. Combat impulsive shopping: Avoid indulging in random shopping sprees, especially those fueled by easy credit offers and attractive discounts. Impulse buying can derail your budget and even lead to debt, hindering your savings goals. 
  4. Exercise financial prudence with loans: While readily available credit options might seem tempting, avoid unnecessary borrowing for frivolous expenses. These loans often carry high interest rates and hefty EMIs, becoming significant roadblocks to your savings journey. 
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Invest diligently

While saving forms the bedrock of the FIRE journey, simply accumulating funds in a low-yielding savings account is akin to inviting inflation to erode your efforts. Strategic investment is significant to cultivate substantial wealth and achieve your early retirement goals.

The most opted route for investment lies in low-cost tracker funds. These diversified mediums mirror the performance of stock market indices, offering broad exposure and minimising individual stock risk. To maximise your returns, consider utilising a stocks and shares ISA.

Investing in assets with passive income potential, such as dividend-paying stocks, rental properties, mutual funds, or bonds, becomes your key ally. Seek guidance from a qualified financial planner to tailor a strategic asset allocation aligned with your specific goals and risk tolerance.

Consider your journey. If, for instance, you seek early retirement at 40, starting at 25, your ideal portfolio should initially favour equity exposure, perhaps leaning towards 80%. As you approach your target retirement age, gradually rebalancing towards debt mitigates risk while preserving gains.

Opt for a diversified equity portfolio, incorporating top-performing funds across market caps (small, mid, and multi-cap). Allocate approximately 20% to debt funds for added stability.

Liquid funds play a dual role: stabilising your portfolio during market volatility and facilitating short-term financial needs. They effectively function as an emergency buffer, safeguarding your long-term investment goals. If existing investments in long-term schemes like PPF and FD contribute to your corpus, leverage their tax-benefitting advantages.

Diversify income pathways

Alongside saving and investing, exploring avenues to grow your earnings can significantly reduce the time required to reach your desired corpus.

Consider these actionable steps–

  • Utilise your existing skills and experience to undertake part-time work or consultancy projects. This allows you to capitalise on your knowledge and talents without significantly altering your primary professional commitment.
  • Regularly evaluate your performance and market value within your current job. If guaranteed, confidently advocate for a raise commensurate with your contributions and skill set. Remember, your worth often needs articulation.
  • Carefully assess other employment opportunities that offer higher compensation packages. Be willing to explore new avenues when a change aligns with your goals and skill set.
  • If the entrepreneurial spirit calls, consider starting a side business. This could range from online ventures to freelance services, allowing you to control your pace and income potential.
  • Enhance your employability and earning power through targeted upskilling. Invest in acquiring new skills or certifications that can open doors to higher-paying positions in your chosen field.

Remember, income diversification isn't just about accumulating additional funds. It empowers you to build resilience against economic fluctuations and provides options for adapting your professional life during your FIRE journey. 

Opt for health insurance

While the allure of early retirement beckons, safeguarding your well-being remains paramount. Rising healthcare costs pose a significant threat, with a single medical emergency potentially jeopardising your lifelong accumulated savings. Therefore, health insurance coverage becomes a non-negotiable element of any FIRE strategy.

While your current employer might provide health insurance, remember its applicability ceases with your employment. This leaves you vulnerable in post-retirement years when premiums typically soar due to age-related factors.

The ideal time to secure comprehensive health insurance is not in your late 40s or early 50s when premiums and exclusions might become restrictive. Starting earlier minimises premium hikes and offers a wider range of plans, potentially mitigating the impact of pre-existing conditions.

Remember, healthcare costs rise exponentially with age. By making informed decisions and prioritising adequate health insurance coverage early on, you can safeguard your financial security and well-being, ensuring a healthy and fulfilling early retirement.

Forget rocking chairs and bingo nights. Early retirement is about chasing sunsets, not calendars. Take the first step today, and watch your savings blossom into the seeds of a fulfilling, happy early retirement.

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