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During the time of our grandfather, the process of wealth creation was slow and steady. They generally prefer creating a corpus for their retirement, through savings allocated to bank deposits, and in those times, this was enough to sustain their expenses after retirement.
In those times, jobs from both the sectors, private and government, were for long-term in nature and held the promise of a pension. People in those times spent around 40 years of their life in working and saving up their retirement for the next 20-25 years.
Well, if we talk about the present time, things have changed. Nowadays there is no or very low security of jobs, thus it is not worthy for any individual to plan, to rely on their pension for their after-retirement expenses. Secondly, individuals actively strive to work for fewer than 30 years and support retirement for 30-35 years.
Tables have turned from our grandfather's time till present. At present, the working period has reduced and, the retirement period has increased, the thing that has not changed is the necessity of retirement planning. But to prepare for this early retirement for individuals in the present time they need to bring some changes in their investment style.
To achieve this goal of early retirement, it’s necessary for individuals to perfect these two things, in their strategy.
MAXIMIZE YOUR SAVING TO THE TUNE OF 40%-50%
Investors generally invest what they have left after spending from their income, but to investors who are planning to retire early, it is suggested that first start saving and then calculate how much you need for you spend from the income. Maximizing savings means saving as much as you can. At least 40%-50% of your income needs to go into savings.
For that, it might possible that you have to keep your temptations aside. You may have to shift your budget to lower expenses, for that you have to go cutting down expenses on clothes, gadgets, and many.
The only way to increase your saving for this early retirement is, reducing your spending for these years and the given time frame.
MAXIMIZING INVESTMENT GROWTH
The market is unpredictable and volatility is in its nature, thus a part of the growth of the investment that depends on the market is not in your hand, thus, it is slightly harder to do. You need to realize that for early retirement, your investments, must work even harder in a relatively short period.
Also, while planning for your early retirement you must know that not only you have to replace active income with investment income, but you also, have to structure a budget for the growing value of investments for a longer post-retirement period in order to combat the impact of inflation effectively.
This can be achieved by making a slight change in your asset allocation while investing. For this, you must take a higher calculated risk and focus most of your asset allocation towards growth assets like equity mutual fund.
It is a must for you to tilt more towards Equity Mutual fund in order to achieve a good corpus for your early retirement, in lesser time, but do remember, it does not mean you take on undue risk. It will be better if you go constructing a portfolio of well-managed Equity mutual funds, but always track progress and manage the growth in investments at regular intervals.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).