Early Retirement / Financial Independence / Musings

Financial Independence and Early Retirement in India

Yes, it is possible!

There are people who have retired before their 30s. There are many who have retired in their 30s and 40s. But the catch is that most of them are based in the US. Not many Indians think about early retirement. And for those who want to, the avenues to reach there are much more difficult than those available in the US. The one major obstacle to reaching this goal is INFLATION!

We do not have many avenues of investment whose returns beat inflation in India. We are left with either the stock market or real estate. So achieving a stash that will help us retire early is a humongous task for Indians. Lets say your yearly expenses are 3,00,000 per year. Hypothetically if you can achieve an after tax ROI of 10%, you will need 30,00,000 as your starting stash. This looks achievable for most of us. But if you factor in an inflation rate of 7%, you will need a little less than 4,00,000 in the 4th year and 5,50,000 in the 10th year. This means we will rapidly eat into the stash and end up broke somewhere in the 13th year of retirement. Retiring early and sustaining ourselves for 30 or 40 years is an impossibility in this case. If we take a realistic after tax income of 4% from the stash, we are looking at requiring 60,00,000 as starting stash to sustain ourselves for 30 years after retirement. Assuming you save 50% of your salary, you need 20 years to reach that.

How can we make it easier and faster to achieve?

Fortunately, we have control over a few major factor that can accelerate our retirement plan

  1. Saving Rate: You should look to save at least 50% of your income. The higher your savings rate is the faster you retire. You will need about 12 years to reach your goal of 60,00,000 at 50% savings. If you up your savings rate by 10% you reach in 9 years. You have 3 more years to live your dream.
  2. Income: You can look at increasing your income. Look at alternate sources which can increase your income and consequently your savings
  3. Expenses: Decide what you want in life. Do you need more of what you have now or will you be happy with less? What is more important – spending on the items you buy now or having more of life to live and celebrate after you retire? Reducing your expenses has double benefit of increasing your current savings and reducing your stash requirement. Yay! Full speed ahead.

All calculations represented are very rough. Example I have not taken into account increases in salary or increase in expenses during your savings period. This was just to represent that it is up to you to choose what you want in life.

Is your choice to run the consumerist life style rat race or exercise your right to live your own life?

Share your thoughts and comments on what your life choices are.

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