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Retirement Planning: There are very few people who are able to plan for early retirement. Early retirement means retiring before the age of 60. For this, you will have to invest a lot during your job, only then you can retire early. If you also want to retire early, then you should do retirement planning under the FIRE (Financial Independence, Retire Early) model.
Where did the FIRE model originate?
The FIRE model originated in 1992 with the book Your Money or Your Life by Vicki Robin and Joe Dominguez. Under the FIRE model, you can decide your retirement age yourself. However, if you follow this model, you will have to make a special strategy and may have to invest up to 70 percent of your salary in savings.
Calculate your FIRE number
Finding out the FIRE number means knowing at what age you want to retire. For this, you have to do a calculation keeping in mind your salary, your expenses, your lifestyle and your lifestyle after retirement. If you are not able to do the calculation yourself, then you can also take the help of a financial planner.
Increase savings and reduce expenses
Under this model, the most important thing is to save as much as possible. Under this, you will not only have to control your expenses, but also try to reduce them. The more you invest, the sooner it will help you retire and the higher will be the pension on retirement.
Focus on increasing income
If you do a high-paying job then it is fine, otherwise you will also have to focus on increasing your salary. You will have to look for a job that pays high. If you are not able to get a high-paying job, then you will have to try doing some part-time or freelancing work, so that you can earn some extra income. With this extra income, you will have the advantage that you will be able to invest more and more money.
Where to invest money?
You will have to take some risk while investing money. Try to invest in a variety of instruments. For example, you can invest about half of your investment in the stock market or mutual funds. You can buy a property on rent with some part, which will keep the money coming for years. You can also get good returns by buying land. You can also invest some money in instruments like PPF.
Understand with an example
First of all, let's assume some benchmarks. Suppose you are 25 years old and your salary is around 40 thousand rupees and you live a very simple life. Let's assume that you spend 25 thousand rupees every month on rent, ration, travel, entertainment, health insurance, life insurance etc. If you invest money by taking a little risk, then you can get an average return of about 12 percent from mutual funds. On the other hand, if you invest in PPF and assume that the interest rates will not change, then you will get a return of about 7.1 percent. It is expected that by investing in property, you will get an average return of 12 percent in the long term. In such a situation, if you invest in different places, you will get an average return of 10 percent.
Keep increasing your savings amount by 10% every year
Now let's assume that you invest 50% of your total savings in mutual funds and 25-25% in PPF and property. The question here is how much money should you invest? To know how much money to invest, you need to know how much money you will need at the time of retirement. Let's assume that in the long term your salary will grow at an average rate of 10% per annum. In such a situation, not only will your expenses increase every year, but you will also have to increase your savings by 10%.
How to retire at the age of 50?
If you want to retire at the age of 50 and your current expenditure is Rs 25,000, then you will need about Rs 80,000 at that time, that is, you will have to create your own fund of about Rs 2 crore. For this, you will have to invest about Rs 6,000 every month and increase it by 10 percent every year. In this way, at the age of 50, you will have a fund of about Rs 2 crore.
Think about the extra 10 years
One thing to keep in mind here is that if you are retiring early then you have to think about 50-60 i.e. additional 10 years. In such a situation, if you are planning retirement for 50 years, then you have to keep in mind the next 10 years as well. With an increase of 10 percent every year, your monthly savings at the age of 50 will be around Rs 65 thousand.
Understand further calculation like this
If we assume that you need an investment amount with 10% growth for 10 years, then it is about Rs 2 crore. That is, by the age of 50, you will have to invest in such a way that a total fund of Rs 4-5 crore is created. In such a situation, you will have to increase the investment by 10% every year and start investing from about Rs 15,000 and at the age of 50 you will have a fund of Rs 5 crore. If you also get 7% interest on this, then you will start getting Rs 35 lakh every year i.e. about Rs 3 lakh every month as pension.