Early Retirement- what i did right and wrong

Early retirement to spend time on doing things that you wanted to do and could not do because of your routine is what most of us dream of. I retired early in life to follow my passion of travel and wildlife photography. It has been four years since I quit my corporate job now I have something to share with those aspiring to do what I did. I shall try to share some of the things I did right and certain things I did wrong

The two things that make the backbone of early retirement are

• Financial planning

• Time planning

Early retirement means you need to build up a corpus to sustain your lifestyle without the comfort of a monthly pay cheque.

One big precondition to be strictly adhered to before retiring early is that you need to own a house and a car and there should be no debts or EMI’s.

How to decide what is the corpus you need

The decision on the amount of corpus needed varies from individual to individual. In my case I wanted to maintain my lifestyle, which I had at the time of retirement.

The process that I followed to determine the amount needed was

• I noted every rupee spent and the purpose of the spending for one year.

• Segregated the spending into

1. Absolute requirement for living

2. Travel

3. Entertainment

4. Impulsive buying

5. Medical expenses

6. Insurance (medical, life, term, vehicle)

These expenses I separated out into inflation affected and non-inflation affected.

Once I had average spending per month under each head I knew what my monthly requirement was.

Then I made a calculator for knowing my future requirement where I assumed an average inflation in the next 20 years and the bank saving rate for the same period and applied it to the monthly actual requirement that I had got. This inflation-adjusted number would tell me how much interest had to be generated each month.

Inflation would keep increasing the amount needed each month and there will be a time when the amount needed would be double of what you are spending now. So actually your corpus has to generate an interest that is a lot more then your current requirement. This saving in the initial years will help in supplementing your interest income to meet the increasing requirement as the years go by.

The corpus has to be invested in a tax efficient long- term bond to generate interest income at fixed intervals.

The avenues available are

• Long maturity Tax free bonds

• Fixed deposits

The second important thing that you need to do is

• Have a good amount of medical insurance. The maximum possible amount covering the whole family

• Have a good amount of life cover. A term policy in excess of fifty lacs

• Make provisions for buying things that may be needed to upgrade your skills.

• Provide for capital expenses

• Provide for children’s education. This has to be a separate saving and cannot be from the interest income. Let me give a brief of what I think can be done.

For children education you can do what I call event investment. The instruments available for you to make event investments are

1. PPF (matures in 15 years)

2. Life policies like jeevan beema or bema gold .not very efficient but will give you a bulk amount on maturity. You could take it for matching an outflow

3. Deep discount bonds of varying maturities

Time planning

The financial planning is only one step towards early retirement. The most important planning that needs to be done is time planning. You need to have a passion or a hobby on which you can spend a lot of time. Remember you will have lots of free time on hand. The office kept you engaged mentally for 8 hours a day. Also you were with people who were in the same field as you and had a lot of common things to talk, discuss and crib. So you need to have a plan in place to keep yourself engaged. Some more things I learnt were

• The best of friends have their jobs and families to concentrate on so may not be there when you feel like talking to them

• Stop having expectations from people, as everyone’s priority in life is different.

• Do not aim for perfection in your hobby or else you will stop enjoying the little joys of your hobby.

What I did not plan for

• In my portfolio I had no growth assets there was only fixed income investments. Feel there should have been a mix of growth assets (by growth assets I mean where there is capital appreciation)

• I had made no provisions for capital expenditures (home repair, car and new equipment for my hobby)

• I had no concrete plans for utilizing the spare time that I get when not travelling.

Finally the success of all these planning hinges on only one thing and that is financial discipline.