Everyone, whether a male or a female, single or married, with or without kids, no one loves a monotonous life. A job of 9-5 can fill your pocket but may not fill your heart. Some want to retire early, travel and explore places or spend time with their family. On the other hand, some have high aspirations of following their passion. So, in this article, we will discuss more on early retirement and how to retire early from the job.
Scenarios That Frames The Thought Of Retiring Early
Until and unless a thing strikes too hard in our brain, we don’t divert into something better. For instance, until you face the problem of excessive workload or lack of time towards your family, you won’t understand if you need to change your job. You might get the feeling of a ‘duty’ in your work life and may not enjoy it. Then, it becomes high time for you to decide for any other alternative. Thus, you can either alter your job or set up your plans.
For altering your job, you can get into a new organization, a unique atmosphere. However, for setting up your own goals, you need to know the tactics of early retirement. Apart from that, there are several other strategies that you might need to adapt to create a better situation. We shall come to know about it in detail after a few paragraphs.
Fortunately, since you’re a human being, you can create your destiny. Isn’t it? Everything depends on your hard-work, effective plans, and their implementation.
Thus, several scenarios frame the thought of retiring early. Let’s know more about it-
1. It’s applicable for people with more than one earning source. For instance, let’s say you’re in a management company, sideways you have an investment in the agriculture sector. Added to that, you’ve expended in the mutual funds as well. Thus, now you’ve 3 sources of income. Although the mutual funds will get rewarded in the future. Still, you have two other investments. Apart from that, if you make ideas, you can generate more sources of income even. For instance, you can rent people in your house and get a rental income. Then, you can go through several tricks to avoid tax impositions and thus, get more amount in return. The list doesn’t stop here.
2. As I’ve explained in the later paragraphs, you must devote a large part of your earning towards it. Well, this is the most important point that you must abide by for retiring early. Since you’re retiring early, you will miss out the last few years of your regular salary from the organization you were working. However, you can still maintain it or increase the curve with your previous savings. You can work on your savings platform by decreasing the extra expenditure on unnecessary items. There are more such ways which are discussed in the latter part of the article.
3. You must have a strong passion about a thing that you’ve always wanted to do. Retiring early just to eat and sleep is not a choice. It is because in today’s world, money is everything. You can’t live on just the love of your family, food, and a roof over your head. There are certain demands, necessities that you need to fulfill. For that, you need money. So, there’s no way how you can stop working without deciding what you need to do next or planned a back-up. You must frame a plan regarding what you shall do and when. You ought to keep working. However, since now the string is in your hand, you’re your boss. You don’t have to work under any rather hire workers.
4. At last, it’s again repeated that you must make regular savings and carry out heavy jobs in the beginning. It’s because you never know if your passion plan would work out up to the mark or not. Apart from that, you must also be sure if you can work on your passion for the rest of your life. If it does then well and good. Yet, if it doesn’t, you must utilize your back-up savings.
Now that we’ve known about the scenarios that frame the thought of retiring early. Next, let’s see how to meet the clauses of early retirement.
Strategies To Meet Early Retirement Plans
To meet your daily requirement plans, make sure you go through these strategies. Once you make up your mind with these headstrong thoughts, you’ll be able to cope up with the dilemma.
Meeting The Early Retirement Forethoughts
Have you seen a person earning in lakhs partying and clubbing every night? You may earn in lakhs per month, have a luxurious car. But, at times due to lack of time you sleep without food out of being tired. You are always engrossed in your laptop and unable to give time to your family. Is it what you call life?
Many want to change their lifestyle according to their sake. Yet, they end up waking up to their boss’s taunts in their daydream.
There must be various questions arising in your mind, right. How to retire early? How to earn after retiring early? Still, the most important aspect is how to meet financial needs? So many more questions.
So, let’s meet them one by one.
1. Begin Your Preparations At A Young Age
Preparing from a young age means getting a heavy bag of back-up money. Ever saved pennies to a small amount in a piggy bank? Then breaking it years after to get a small thing. The thing you bought might not be exorbitant but it certainly satisfies your heart. Isn’t it? Similarly, saving up a young age gives a better motivation than anything else.
Suppose, you’re an engineering student. You are not satisfied with your regular monotonous life. You were in your early 20s when you got a wonderful job with a good salary. Yet, you’re fed up with it and want to pursue your passion. But, for that, you need back-up capital. That is, in case, it fails, you at least have something to meet your needs. For that, you can save up at least 25% of it every month for your future use, apart from other saving schemes.
Apart from everything, the earlier you start saving, the happier your mind stays. Thinking about a back-up future, you will get a happy feeling.
2. Think Wisely Before You Go For Any Investment
Having passion is all good. But, investing in something that has very low or no future would mean foolhardy. Before going for a serious investment, make sure you research about the field. You must know how to start, where to start, a trustworthy partner, etc.
It’s always safe to keep everything pre-planned and then go for the investment. Thus, leaving your job for your passion and investing everything in it is foolhardy. You must keep something as your back-up. Who knows if it fails? There must be adequate finance back-up to support you and your family.
For instance, there are amazing offers in investing in mutual funds these days. Apart from that, when you go to a secured place for MF, you don’t have to worry about its security even. Many banks providing mutual funds like SBI Bank, HDFC Bank, Kotak Mahindra Bank, etc.
You can choose any of these banks and get started.
3. Raise Your Savings With A Raise In Your Salary
When you were earning Rs. 40,000 a month, you saved Rs. 5,000 for your early retirement plans. But, when you started earning Rs. 80,000, will you still save the same? No, right!
Thus, with a rise in your salary, increase your savings as well.
4. Make Sure You Get A Proper Health Insurance
Whether you go for early retirement or not, health insurance is mandatory. Nobody knows what’s going on inside our body or what will happen after 5 mins. So, it’s better to get a protective shield that would restrict you to lay upon your future savings for medical treatment purposes.
5. Let SIP Take The Remote Control Of Your Monthly Investment Towards Your Goal
SIP ensures you don’t miss out a month to devote your savings to your future goals. However, it is not feasible if you’re devoting a lump sum. Since a lump sum requires constant attention. Moreover, unless you’re a wealthy being, it would certainly affect you.
However, in case of small amounts, you can let SIP work on it diligently. For example, if you’re investing from a very small age, the amount might be less. But, consider it, on compounding with good interest, it can be huge in the future.
6. Early Retirement Also Means Early Gripping Of Assets
Early retirement means a narrower career period and a broader retirement period. That is, when you’re saying you’re going to retire early, you mean you’re retiring at 45-50 years of age. Thus, if we consider you started your job at 25, you earned for 20 years. From the age of 45, until assuming an average life span of 70 years, you’ve 25 years to spend. Thus, in this regard, you got less time to save, earn and build a piggy bank. Whereas on the other hand, you’ve about 25 years or more to spend on the things related to you or your family.
Thus, it’s a simple mathematical calculation that you can use to know if you need to use active savings strategies to grow up a passive retirement fund for early retirement.
Hence, related to it are a few principles that you must go through to understand better-
i. Too economical, or rather a miser
This may hurt the sentiments of a few but trust me it’s not a healthy habit. I’ve come across a few people who’re known to keep aside about 80% of their income to meet future demands. On the other hand, they feed their family just rice and potatoes. They don’t focus on a line beyond necessity ever. Thus, in short, they don’t live their life for the sake of their future.
ii. Energetic and bold investment
Saving in a savings account can add interest to it. There are even banks that provide a lot of interest in security.
iii. Getter a better grip on expansion
For example, you retired at the age of 45. You got your lump-sum retirement fund. Apart from that, there are other investments like the endowment policy maturing, mutual funds, other investments, etc.
Thus, when you get such a lump sum at a time, you can divert this amount in some other expansions. You can invest in stock markets or the agriculture sector or some other businesses.
The amount left with you must be divided into two. One, you indulge with your passion building and the other as your future requirements. Yes, certainly you must keep something as your back-up right. You never know if your fate doesn’t fit by your side.
How To Retire Early?
It may sound weird but almost 99% of the people work for money. There are only one in a million who choose to pursue their dreams from the ground root level itself. From others, only a few but determined choose to retire early and work for their passion. However, it requires sheer stringent strategies with proper implementation.
Some may become a writer, some may be an artist, motivational speaker or even a software developer. Even if you have enough savings, earning about Rs. 15,000-20,000 a month can provide necessities. Apart from that, various other ways provide methods to earn even if your passion doesn’t provide bucks. You can teach students in your free time, work in a parlor, etc.
Passive Earning Schemes
You may hear people saying: When I got into my professional career at the age of 25, I started enjoying my job in the initial phases. Every time I stepped inside my office, my seniors would load me with works. I had to work with literally food in my mouth. But, since I was earning Rs. 60,000 per month, I was enjoying it in the beginning. But, gradually I lost interest. Then I started to set up my plans for early retirement.
I started saving up some amount every month in the form of savings in the bank for the future. Apart from that, my wife runs a dance academy. So, this adds to our savings as well.
As per my future plans, I had decided to retire at the age of 45. Then I planned to give a physics tutorial and side-by carry out some painting artwork. It was my childhood dream to become an artist. But, in our Indian society, until you become a renowned artist, your arts are not valued. Thus, the physics tutorial came as another job. My wife decided to continue her academy.
So, combined, we saved a total of about Rs. 35 lakh for our future use. Then I thought, if we sell our properties, we would have even more amount in our bank balance. Thus, I sold one of our property and the sum added up to a total of Rs. 65 lakh.
For a normal human, this amount is enough to meet the financial requirements for about 20 years. However, it may vary if you’re a resident of south Mumbai. You may not find this much amount enough. But, if you’re living in Odisha, then genuinely speaking, it is more than enough for you and your wife.
However, as mentioned, I was an aspirant of doing various other activities as well. So, here is a table showing the combined earning of me and my wife in a year.
Thus, considering this table, the amount that we receive at the end of the year is enough. Apart from the previous savings we made, this earning is more than enough for an average middle-class family. However, this ratio can go up and down. Yet, you have to adjust your expenditure likewise.
Thus, making a rough table like this will help you solve your queries.
Advantages of Early Retirement
As I’ve already said no one loves a monotonous life. You can always cherish to get something more with less effort. Added to that, you must be loving that job too. Well, this is just an imagination and hardly comes to be true. Isn’t it?
You can certainly get it with hard work, smart strategies, and a pinch of good luck. Just like that, you can go for your passion, deviating from your regular job. Yet, for that, you must know every detail attached to it. So, let’s wave a look towards the advantages of early retirement.
1. You Are Your Boss-
When you’re working in your own company, will your employees regulate your timing? Will they scold you for coming late to the office? Certainly no right. Thus, you can regulate your gear and handle the wheels.
2. You Can Live Your Life-
You can do the thing you’ve always wanted to. Added to that, if it adds to your pocket, then it’s even better. For instance, let say you didn’t like your regular job and wanted to create software and sell. For that, you need ample of time. It was not possible with your side job. Thus, you thought of going for it after your retirement. Hence, if you’re earning from this business, it’s even good.
That is, you’re doing something of your choice and even getting paid for your will. It’s like getting paid for traveling or eating of your choice. That is even more awesome!
3. You Can Give More Time To Your Family-
As I’ve said, since you become your boss after choosing this stream, there’s no one to question you. You can come to your office whenever you want or stay back with your family to spend some quality time. For instance, you wanted to become an artist. Thus, if you chose to become an artist after your early retirement and didn’t want to work one day. You can skip the day or week or a month till you’re sure you’ve enough bucks to sustain yourself and your family.
4. You Can Live Up Your Childhood Dreams-
Ever got the thought in your childhood of becoming a chef after seeing a chef in a restaurant? Or put some other occupation in the place of a chef. I have seen people getting scolded from their parents when they say if becoming a dress designer. They get pushed into a college of their parents’ choice and thus, join in the rat race.
Thus, with the increasing age and family pressure, you get into the same monotonous life as your parents. Finally emerged an ATM that would work all day long and earn money. However, by getting into early retirement with smart tactics, you can live up to your childhood dreams. You can work following your parents’ wish, save up for the future and also do what you’ve always wanted to.
5. You Can Earn Till Your Entire Life-Time-
When you have a business or a company of your own, you can even lend that to your heiresses. Thus, till the end of your life-term, you would get a line of income. Even after you, it can employ your children and other workers. Hence, it can even add to the employment strategy. However, it is a long-term idea and works only if your idea works successfully.
Disadvantages of Early Retirement
As we came across the benefits, options, and strategies of early retirement, we must also look at the other side. Some points pose themselves as the disadvantages of early retirement. Let’s go through them one by one.
1. Financial Challenge-
Well, this is the most crucial challenge that you can face if you don’t handle your strategies well. Retiring early can create a scenario of less working years and more spending. Well, here spending does not include the earnings that you can generate from your passion.
For example, you devote about 40% of your savings towards your passion. You won’t call it spending in this case. The income that you generate from your passion investment is your extra earning. This can add to your savings.
The financial challenge that I’m talking about comes from the losses incurred if any. Thus, to avoid that you must have a stiff strong savings beforehand.
2. Retirement Fund Withdrawal Taxes-
Everyone can say you to follow your passion, set your goals, and rush behind. No one shows the scenes behind. What I want to say is the early retirement age, which people normally accept in a range of age 40-50. But when it comes to withdrawal beforehand or retirement at 45-40, you’ve to endure some more.
Early retirement poses another threat of tax inclusions to your fund withdrawal. There’s no shortcut to avoid it. Yet, some companies that provide the opportunity of the early need may not include such taxes.
3. Reduced Benefits-
Several reduced benefits are included in the package of the early retirement.
When you get one benefit, there are scenarios that may drag you into losses. All you need to see if there is any way out to avoid this or it’s inevitable. Thus, reduced benefits refer to the less pension fund or other such retirement funds.
For instance, you’re retiring at the age of 45. By the Indian law of retirement, you’ve another 13 years to get a retirement age. So, for these 13 years, you could have gathered more in your EPF or other savings scheme. If you would have received a promotion before retirement, you would have received more amount as a pension.
When you’re in a regular 10-5 job, you get the assurance of a regular flow of money. That is, there is no tension of any loss or major downfall in it. But when you enter into a business of your own or be your boss, there are chances of loss.
As I’ve said in the last point, in your own business, there are chances it may collapse. Thus, in that case, if you don’t have proper savings planned, you’ll certainly end up in the thick soup.
4. Non-Monetary Barriers-
Well, this is the most crucial question that I’m going to ask you next. Answer them to yourself calmly.
Do you think you can feed your family and keep yourself sustained with your passion? Can you continue pursuing it for the next 10-15 years? Won’t you get bored of it? If you get bored of it, what is your next back-up? Do you have a proper financial back-up?
If you have crystal clear bold answers it these questions, then only proceed. Otherwise, it would be foolhardy to leave a good job and jump into the water without a life-saving jacket. Isn’t it?
Now, that we have known about the advantages, disadvantages. Let’s know how you can calculate your retirement strategies, savings virtually with a calculator.
Okay, lastly comes the most dangerous point that can hamper your progress. It can slowly eat up all your signs of progress. It may make you double or quadruple up your savings to meet. You might even need to modify and strengthen your portfolio.
Thus, the only way to meet this is to keep a stiff stake on your expenses. That is, you can make your expenditure as cheap as possible. You have to cut short any means of extra expenses. This may ruin the mood of your family members in the short run. Yet, they will certainly know its importance in the later stages while enjoying the fruits of your hard work and smart business.
Early Retirement Calculator
Like your percentage calculation during your childhood, there lies a calculator for everything. By this, you can calculate how much you can save on rough and get your future needs fulfilled. So, let’s calculate.
For instance, let’s assume you’re earning Rs. 60,000 per month. You started your job at the age of 25.
In this, let’s assume that your salary remained the same throughout your job period. Thus, your annual income is Rs. 7,20,000. From this, let’s say you devote about 50,000 towards your passion building after retirement. Thus, after 20 years, you’ve about Rs. 10 lakh. This is enough for starting your business or going for your dreams.
Keep in mind, apart from this 10 lakh, you must have other savings schemes. As I have mentioned above, there are schemes like MF, retirement fund, savings account in banks, etc.
Early Retirement Pension Charges
Early retirement is a self-choice. Yet, the charges implied on it varies according to the reason you pose. If you retire due to any medical disorder, the charges may vary from the cause of pursuing your dream. So, let’s know more about it.
The state pension is something that is provided in a sort of pension fund. However, it’s delivered only after the appropriate age of retirement. Even if you retire before that age, you will receive it only after attaining that age.
Apart from that, the amount you receive will also be comparatively less than the normal. It’s because the state pension authorities take into account the total number of years you contributed towards your job.
The ‘qualifying year’ is the year(s) when you pay your taxes towards the NICs. Since you stopped devoting your contribution towards the NIC at an early age, you may receive a lesser amount. Yet, you can avoid it by keeping contributing towards it even after your early retirement. That is, even if you retire at an early age, you can devote some of your earning towards the NIC. By this, you may get a better amount than the actual amount after your early retirement.
For instance, let’s consider you served the company for 20 years. Thus, if you retire after that, you got 20 years as your qualifying years. However, if you still contributed to it from other sources of your income, it might increase. This will further leave you with more returns and fewer deductions.
How To Deal With Early Retirement When You Have Kids?
Everyone aspires to become a parent, at least once in their lifetime. However, when it comes to dealing with early retirement while having kids, it becomes an inch tough. More the number of years you devote towards your regular job, the more secure you can frame the pavement. Thus, you can easily cope up by working for about 25 years of your regular job.
Since, you never know how gifted your child is, so, it’s better to put a long jump than settling for a shorter one. Caring, feeding, and educating a child requires a lot of funds these days. Added to that, it’s even unhealthy to put a compromise on it. Thus, your child should be your priority. Trust me if you do so, the bucks will follow your lead.
There are cases when both parents are working and choose to focus on their careers. Indeed, you must never compromise on your career. But, when there is another responsibility on your head, it’s more beneficial in the long run to give some productive time. Thus, investing in a child is another big investment that can make your future even more beautiful. It may mold your child into a genius scholar which may stop you from searching for another job after your early retirement.
Thus, coming to the pinpoint solution, you ought to save about 55% of your total earning. However, this percentage may vary following your total earning. If your income is well-off, you can increase it. That is, you can cut off the extra expenditures and adjust here. However, if your salary is not too high, there is no chance to increase it.
Thus, when you’ve decided to go one with a child, you have to put in extra effort as well.
Guidelines For Personal Pension
Early retirement includes a set of guidelines that you must take into account to regulate your pension schemes. Apart from that, there is also a provision of inclusion of the workplace retirement fund. Let’s have a glance at what it says-
i. As per the workplace pension, you’re not entitled to get your pension before the eligible retirement age.
ii. There are, however, special seats for the people retiring early due to the medical terms. For that, you need to provide the medical certificate as proof of your illness.
iii. If the pension amount you’re getting is non-superfluous, you can divert it and let it stay in your account. It gets added up with the future pension amounts and finally, you can get a lump-sum.
iv. In case, if you want to join another organization, you must shift your account to the same company. Since every organization has its own set of rules, you must abide by them before rushing into things.
v. In case you have more than one employee, you will have to seek consultancy from the concerned officer about your pension funds.
vi. Since you served for a lesser period, the amount that got accumulated as your pension benefit is less. So, it is certain that you will have to get satisfied with a small pension amount.
Final Salary Plans
These are the plans that you contribute from your basic wage. There is a provision of your devotion and your employer as well towards your pension funds. It’s known as final salary plans.
For example, let’s say you started devoting a part of your salary towards your pension fund at the age of 25. Assuming the fund getting calculated on a scale of 1/80-
If you retire at the age of 45, you would receive about 45-25/80, i.e., 20/80 of the fund.
The compromise you make here can get adjusted with your later passion job and smart handling of your funds.
Frequently Asked Questions
1. How much pension do you lose if you retire early?
As I’ve already said, the retirement when you wish to receive is entirely your decision. Yet, based upon that, the amount you receive as your retirement fund or state pension gets decided. The retirement age is 58 years. Thus, if before that you wish to receive retirement, you shall lose some of the funds.
However, if you wish to retire early due to medical issues, then there won’t be any tax impositions. However, if you’re doing it to pursue your dreams, you have to keep some fund aside for taxes.
Apart from that, if your better half is a civil worker, you will have to receive only half of the total retirement fund. The rest half gets devoted towards your pension charges.
2. Can you retire early and still work?
When it comes to your will, retirement is in your hand. Yet, some organizations that encourage early retirement, do it to indulge younger people with less salary.
If you want to pursue your passion after retirement, it is your decision and the company has nothing to do with it. You will just get your retirement funds and a farewell from the company. That’s it!
3. How can I retire early with no money?
It is one of the serious issues faced by the people in the U.S.
The people there have either very less or no amount saved to meet their future financial expenses. Some have less than Rs. 1 lakh in Indian currency for their future. Thus, they shall have to carry on by dealing with various factors like-
i. Financing their outstanding debts
ii. Maintaining their regular expenses
iii. Working on odd jobs
However, this is normally not a problem in the case of Indians. Be it government or private sector, there’s a provision of keeping a part of their wage for their future dealings.
4. What is the earliest you can take retirement?
There is no such certain age at which you can opt to take your retirement. You can take your retirement after 5 years to 35 years. Yet, if you’re considering the ideal age of getting a job is 25 years, then for early retirement with proper strategies, the age should be 40-45.
It’s because for carrying your passion or dream job, you must be physically and mentally active enough as well. Once your heart crosses the brink of old age, you would lose the power of continuity of your passion. Thus, it must not be too early or too late.
5. Can you retire with no savings?
Can you travel to a new city with very less or no money? No, right! Likewise, you can’t even think of retiring out of nowhere and no plans. Retiring early from a regular job requires a lot of plan and courage. You must be head-strong about your decision and passion.
Apart from everything, you must be sound enough with money to meet the necessities of you and your family. Thus, savings is utmost necessary for early retirement as well as late.
Apart from everything, you must be sound enough with money to meet the necessities of you and your family. Thus, savings is utmost necessary for early retirement as well as late.
6. Can you retire after 30 years of work?
Yes, if you’ve followed the strategies and penned down the steps that you’re going to follow next then why not. However, you must be active and energetic enough from your heart to carry out the procedures. It’s because if you started your job at the age of 25, then after 30 years of work you would turn 55.
Thus, people at this age lose the hope of starting their start-up and carrying out the processes. Yet, you must not lose hope and determination from yourself.
7. What lifestyle I must pursue to speed-up my savings process for early retirement?
Like the show on the television, you can’t win a lottery with your first sale and become the billionaire the next day. Not everyone can practice these terms. Yet, you need to adapt to an economical lifestyle. Well, if you think you can save by travelling, partying every alternative day then you’re wrong.
Yet, you can’t opt for saving by feeding yourself and your family or bread butter and rice, potato always. What I mean is, you must make a standardise lifestyle. That is, you can make a schedule of going out with your family once a month. Buying ‘ not so expensive’ but smart clothes. These are a few of the alternatives that you must adapt yourself with.
The harder you work, the more you earn, the smarter you invest, the mother you save, you’ll get the better in returns.
8. Is early retirement really difficult?
Fighting with early retirement is just a psychological disorder that goes on in the mind. As I’ve already mentioned above, if you are not ready to fight with your mind, don’t go for it. It’s mentally tough to leave your regular job and work on your passion.
Apart from that, ask yourself if you are mentally ready to go for your passion for about 10-15 years. Leaving your regular job for taking up a self-created business requires strong determination.
9. How to know if I am ready for early retirement or not?
Well, if you cannot read your mind then the only way left is testing your choice.
Test yourself if you’re financially stable enough to carry out the future expenses. For that, you need to make a rough calculation on your savings and expenditure. You can put a line on the range of your expenses. You can cut short your travelling expenses or shopping, etc.
Added to that, you can make a monthly list of the total expenses that get carried out in your family. Look at it closely and see if you can cut short anything extra.
Carry out these processes for 2 months and if you can manage, then financially you’re stable to go for it.
10. Is it worth taking the risk?
Just one question and you can hear your inner self. Do you want to pursue your dream or give up in this rat race?
If you’re confident about pursuing and ready for a stiff hard-work in the beginning years, go for it. But, trust me, once a pavement gets settled, the pleasure you get is immense. So, I would suggest, if you have a proper financial back-up then, yes, it’s worth taking a risk.
Everyone wants to run away from this monotonous rat race and live a life of their own. For this, they need to follow the prescribed rules and strategies and work out them. Thus, by this article, I hope, I was able to clear all the doubts on early retirement: how to retire early from the job. Peace!