Goals / Retirement Plan

Our Early Retirement Plan: Part 1

Retirement Plan

You can read an overview of the plan here. This is Part 1 of our early retirement plan. I will discuss how we decided our retirement date and the many open questions that are complicating our decisions. Part 2 will cover how we plan to decide our ‘retirement number’. Part 3 will cover how we plan to invest our savings to reach this number.

As I have mentioned elsewhere the 1st 2 things that are needed for a retirement plan are a RE date and the money required. In this post, I will touch upon how we decided our RE date and all the questions that we asked ourselves to arrive at our money number. As usual, I will not be sharing any number, since we feel that is very personal to us. I will be focusing on the process that we followed, and I hope that will be more beneficial.

Planning our Retirement date

We started discussing about early retirement somewhere in early 2016. That was when I had stumbled upon ERE and MMM blogs and the idea of FIRE. I was happy with my job, but was not in love with it. The idea of working for the ‘man’ and a fixed schedule for the rest of my life was a little depressing. We had a couple of vacations that were focused on relaxation and downtime, so the Mrs. was very receptive when I opened up this idea. Both of us were enthralled with the option to have a relaxed life spending time on what we love.

The immediate next question was – When? We just randomly picked 2027 when I would be 45. It seemed a nice round number to retire at. Yes. I can see you frowning, but understand this was at right at the beginning when we were debating this idea.

This gave us about 11 to 12 years to build our portfolio. We already had a really good savings rate (~60%). So we believed that this would be enough time to save enough money to enable us to retire. This long timeline would also give us enough time to look at building avenue for passive income / alternate income. We don’t have any as of now other than interests and dividends (both lower than inflation after tax). There are a few other benefits too

  1. We do not have kids yet, but plan to extend our family. This timeline would give us a good indication of expenses with an extended family
  2. We have a bucket list of locations we want to visit and visiting them before retirement would hopefully help reduce travel spending after retirement.
  3. 10 years is a long time and I expect our interests to change. With this timeline I think we will be able to have a better idea of what we would want to spend time on after retirement. So our financial plan will be that much more robust.

A final thought is that this retirement date is not set in stone. We don’t hate our jobs now, and can extend our working lives a couple of years if necessary.

Lots of Questions and no Answers

The drawback with having such a long timeline is that there are too many open questions that we don’t have definite answer to.

Children

We do not have children yet. Though we can plug-in approximate costs for education and general living expenses for kid(s), how do we estimate for their interest and dreams. Even the location we will retire to will be dependent hugely on this last aspect. On second thought, even education expenses will be significantly different dependent on the career pursuit. Masters in Engineering is much less costlier when compared to an MBA – comparable schools of course (IIT vs IIM as an example). Arts & Sciences might be even cheaper (I have to check this).

For now, we are plugging in some very approximate number of what our projected expenses will be when we have kids – both monthly and big expenses like education. We are trying to plan for the higher end first – both to see if we can meet this and to have some safety margin.

Health

Health care is one expense that is inflating at a much higher rate than anything else. Insurance would be the best way to cover this risk. For now, both of us are covered in each others work based health insurance. What we need to decide here is if we want to start an insurance cover now or wait until retirement. Starting one now will mean

  1. We get a lower cover than we would if we start at a later point in time
  2. Any (hopefully none) conditions we might develop during this 10 years would be covered since we already have an insurance. Any insurance we start later might not have this benefit

In financial terms, will spending money now & offsetting risk in point 2 be better than taking a policy at a higher rate later on? I am leaning towards starting a health insurance now. But need to run some calculation so that I have some data to base my decision on. There are multiple online sources were you can compare rate for a 35 vs 45 year old and so on. I will be using one of these for some number crunching and some excel work. Yay!

Lifespan

The average expected lifespan has been increasing with improvements in healthcare and healthy living. But this does not mean we will remain active until the last day. I believe that even if we are healthy in terms of no illness, we will not be mobile enough to take care of ourselves without help when we are >85. That means our lifestyle expenses will reduce steadily after 75/80 while our healthcare expenses will go up. This is another aspect of healthcare we have not estimated yet.

Where do we retire to?

This is the mother of all open questions. All the above lead to just the financial aspect of retiring. We can always choose to extend our work life to cover those. But the retirement location will influence our lifestyle and how happy we will be in our retired life. And it will not be just us, but our children too.

For now we want to retire in a place that will give us access to some clean and quiet (difficult in India) beaches over the weekend. It could be an hour or two drive away. But we are not sure what our children would like. Hopefully we can scheme and convince them to like the same things we do! Ha!

The other aspect that we need to consider is our children’s interests and dreams. Will the location give them enough opportunities to develop their interests and follow their dreams. This is one of the primary reasons we do not even have a shortlist of the places we want to retire to. For now, we are sure we don’t want the hustle and bustle of big cities. There are no other entries in the checklist for now. And we are ok with this uncertainty. We have loads of time to decide and will probably only start thinking and researching seriously around 2/3 years before retirement.

Be sure to read Parts 2 & 3 where we share other aspects of our early retirement plan. And please do share your thoughts on how you are dealing with any uncertainties in your retirement plan.

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