Do you want to retire at 40? Here is a detailed guide on how to retire at 40 in India, follow these 5 steps and get ready for your retirement at 40
Retiring at 40! Doesn’t it seem like a dream? A dream which seems far away from reality? What if we, today, told you that it is possible? Would you believe us? Let’s tell you some hacks which would help you retire at 40 in India.
First of all: Remember, that this plan is solely based on your actions and your financial discipline. By this, we mean you need to be disciplined in your finances and take actions according to your plan NOW. Let’s dive into it, we have laid down some key factors which would help you get started:
1) Start Investing Early
We know that this sounds cliche, but this is a golden rule. Starting early would not only help you benefit from the compounding effect which the markets provide but would also help inculcate in you a habit of saving and investing. You will learn how business cycles work and what risks different industries possess. It would give you an edge while you would be retired, living your dreams and just staying aware of the news would help you make wise decisions with your finances.
2) Learn the art of Delayed Gratification
You might have heard Gary Vee talk about this a lot, but what does it really mean? It just means to resist your current temptation for immediate pleasure and delaying it for a much greater or long-lasting reward later. This goes in hand with the first point; while you are young, you have less responsibility towards your family and you can take larger risks. You can put a greater part of your salary into investments and reap its benefits later in life.
Did you know? Berkshire Hathaway owns around 10% of Coca-Cola and its annual dividends surpass the salary of its CEO. Yes, that’s the power of delayed gratification.
3) Staying in the Market
Staying put in the market is a skill that hardly a few possess. You need to keep in mind that 80% of the good moves come in 20% of the days. So, you can lose a lot if you’re out of the market for even a week. You should have a mentality of a business owner, rather than a shareholder. A business owner wouldn’t sell his business for the meagre reason that his business is less valuable to others during a day which is gloomy for the economy.
4) Keeping a low profile and living a standard life
Mark Zuckerberg, Bill Gates, Jeff Bezos, Warren Buffett and even our very own RadhaKishan Damani are the most simple people you will find on this Earth. You need not show everyone that you are rich by owning something fancy. If you can inculcate in you a habit of living a simple life, you will be able to reach your financial freedom early, retire and sustain your lifestyle in the amount of corpus you have saved for yourself.
5) Learn a skill you love
Retiring is all about quitting the rate race, leaving your tedious 9-5 job and moving on to enjoy your life with no tension of making money. Learning a skill which you would love to do would help you enjoy and earn at the same time while being the master of yourself too. While these were the qualitative aspect of retiring early, let’s discuss the quantitative aspects too.
How much money do you need to retire at 40?
Well, there isn’t any particular figure which could tell you that you need XYZ amount to retire at 40. This is so because everyone’s lifestyle is different. It mainly depends on your monthly expenditure, your future obligations/plans like child’s education, marriage etc. But to provide you with insight, we have taken three cases: a luxurious lifestyle, a moderate and a simple lifestyle. So, accordingly, we have taken some assumptions which are that as soon as you reach 40, you will retire. You will buy your own home. And you would want to provide your child with the best education abroad.
Some other assumptions which we have taken are:
1. A family who wants to live a rich lifestyle would also want a trip abroad.
2. A family who wants a moderate lifestyle would like to make 1 trip abroad every 4-7 years
| One time expenses | Living Expenses | Budget for life events | |
| Luxury Lifestyle | 4,00,00,000 | 15,00,000 | 1,00,00,000 |
| Moderate Lifestyle | 1,00,00,000 | 10,00,000 | 60,00,000 |
| Simple Lifestyle | 70,00,000 | 7,00,000 | 30,00,000 |
Here, In the table, we have laid down different types of costs for different lifestyles. The one-time expenses includes the house price. The living expenses include the expenditure you would incur to live your life. This includes electricity, Wi-Fi, clothing, trips, leisure etc. The third expense, which is budget mainly includes the money you would put down for your child’s education or marriage, etc.
So according to this plan, you should have
For a luxrious lifestyle: A minimum of 5 crores (6.25 crores to be safe) in liquid assets for purchasing a house and funding your child’s education. These liquid assets can be in the money market fund. It would help you beat the inflation and provide you with a little bit of extra return. Apart from this, a minimum portfolio of 3 crores which would yield roughly around 5-6% per annum. This can be put into dividend-yielding shares or dividend-yielding equity fund.
For the medium lifestyle: A minimum of 1.6 crores (2 crores to be safe) in liquid assets and a minimum portfolio of 2 crores to cover your living expenses.
For the simple lifestyle: A minimum of 1 crore (1.25 crores with added safety) in liquid assets and a minimum portfolio of 1.4 crores for your yearly living expenses.
Please note: We have rounded off figures to a higher value and have put a minimal percentage yield so as to keep an adequate margin of safety. Generally, in India, bonds yield 8-9% w/o capital appreciation and equity yields around 6% with capital appreciation.
The other thing which you need to keep in mind is that as you retire, maintaining sufficient liquidity with yourself is of utmost importance. So, let’s discuss the instruments which you would use for different purposes.
1) Money market fund:
It is a fund that is highly liquid and would save your money from inflation. This instrument should be used to keep your emergency fund and child education fund.
2) Direct Equity/Equity Fund and Bonds:
These instruments should be used for your portfolio. These instruments will pay you portfolio income by the way of dividends, interest income which you will then spend on living costs such as, electricity, food, travel expenses etc. Also, keep in mind that you will have to gradually rebalance your portfolio from equity to debt as equities are highly volatile, thus you may have a liquidity crisis.
3) Health/ Life Insurance:
This is an instrument which you need to have despite your age. Any unexpected uncertainty can prove hazardous to your retirement portfolio. Insurance is a hedge against these uncertainties which would come in handy at the time of an unfavourable event.
Conclusion
The points which we touched upon today would surely help you to retire at a young age, but you should always remember, retiring is an old man’s right. It is like stopping to learn, it is like resting 24/7. Your aim should be to become financially free. Which is, that your investments take your care. A young man who is financially free can retire from his day job, quit work for some time and still get back on his feet to achieve more.