Early Retirement

Here is the transcript if you would like to read instead:

Jaya:

Welcome back to Kairos, a podcast on financial planning where we talk about doing the right thing at the right time. We have Susithra joining us in today’s conversation. Hi Susithra!

Our previous episode on women and financial freedom had good feedback. On similar lines I want to ask you, how do you see this trend of more and more people starting to move away from a full-time job, especially Millennials. People look at options of freelancing, starting own company, or growing own business as the new norm.

Susithra:

Some of you may have had a chance to look at our trailer. I’m personally happy we took this topic because most ppl I talk to tell me about their aspirations towards reaching financial freedom at an early age.

And, to answer your question- Though having a traditional 9-5 job brings a secured feeling, at times it is not what everyone envisioned; when they signed up for it. Times have changed. Retiring early or atleast moving away from the typical work hours have been pretty much on every one’s mind.

Jaya:

Exactly! I recently had this conversation with my friend Nivas. He was excited about his job few months ago and now – dreading upon how he is looking forward for the weekends to come. He has a really hectic schedule, and he finds it hard to balance between personal life and work.

Susithra:

I hear you. Today is an extension of what was on Nivas’s mind. In fact, It is about how everyone aspire to quit their 9-5 job and retire early.

Jaya:

We notice a lot on the internet about retiring in their early 40’s and pursuing their passion or moving back to tier-2 and -3 cities for their post-retirement period. This is a huge shift in trend don’t you think? We have seen our parents and grand parents work till 60’s and for them the aspiration was to earn as much as possible so they can provide for their future generations. So, why do you think youngsters today want to retire early?

Susithra:

Totally agree with you Jaya. This trend has started gaining momentum only a decade ago. There are two ways to look at this.

• • • • • When someone says they want to retire early, what they really mean is that they would like to reach financial freedom, where they don’t have to work in a job with the sole purpose of earning an income to live their life.
        • On the other hand, some aspire to start a business or hobby on their own which they are passionate about, and they need that financial stability before they start something on their own.

Jaya:

Right. So, but the ultimate goal for any reason would be to achieve financial freedom. This again touches on the topic we discussed during our last month’s podcast. We have done this exercise for one of our own clients who wanted to retire early. This client was in his early 30’s and had a well paying job. But, what he really wanted to do was move back to his home town and start an agri-tech business. When he reached out to us, he wanted to explore the timeline of when he can make that switch and whether his finances can support such a decision. He had recently had a baby, and wanted to make sure he has enough saved to fund the child’s education. Thankfully for him, he had started investing from his very first job, so he had some assets in place. We started with analysing his existing assets and mapping them towards his goals. Our main focus was on securing his post-retirement needs by building an adequate corpus, building a separate fund for his child’s education, and making sure he had health insurance and a medical reserve in pace in cases of emergencies.

So, what do you see as benefits of retiring early?

Susithra:

• • • • • You get to spend more time with your family and pursue your passion or things that really matter to you.
        • Hobby/develop a new interest
        • Don’t have to live paycheck to paycheck. You are in charge of your time and how you spend it.
        • Travel more
        • No job-related stress
        • But early retirement is not all rosy. There is other side to this coin too.
        • Health insurance – most are dependent on their company sponsored insurance. Leaving a job might leave you uninsured, if you don’t plan properly
        • Family responsibilities – there could be goals such as children education/marriage which could fall in years post your early retirement. As you are no longer earning, you must have planned for these expenses before hand.
        • Inadequate retirement corpus – this is a classic one. With increased life expectancy, it is very common for people to outlive their retirement fund. And it becomes really difficult to expand your corpus when you no longer have regular income.
        • If you have planned for any asset purchase after retirement, getting loan from banks becomes difficult, as it is not easy for a person without income stream to take a loan.

So, in short, early retirement needs a very well curated plan so that you can live peacefully.

Jaya:

I agree with your point on retirement corpus. As earning years are considered to be accumulation phase for building a decent retirement corpus. Longer the period bigger the corpus. Early retirement could result in a smaller corpus and with inflation and other financial goals post retirement, it highly probable for someone to run out of funds. So how should some one start planning towards early retirement? What all things should they have in place?

Susithra:

• • • • • Start early – power of compounding. You need adequate time to accumulate wealth, so if you want to retire early plan ahead and start early.
        • Adequate emergency fund
        • Take independent health and life cover separate from your company sponsored cover. You can even choose premium paying term to match your retirement, so you don’t have to spend on premium payments post retirement
        • Do not plan for any heavy asset purchases post your retirement if you have not set aside a fund for it.
        • Close all your loans and liabilities before you retire.
        • Keep separate funds in place for all your goals. Education/wedding etc.
        • Generate secondary/passive income which doesn’t require your complete time and effort post retirement.
        • Have a financial plan in place. This will help you keep track of your progress

Jaya:

We have been talking only about salaried people. But, even business owners wants to plan for their retirement, though in their case it is more of handing over the mantle. So, what are the things they should keep in mind while planning for retirement?

Susithra:

A good question Jaya. As you rightly put, business owners never fully retire, they are always connected in some way or another to their business. They only move away from making day-today business decisions when they retire. So, the things they should keep in mind are

• • • • • Succession planning – identify and train someone either within family or outside family who will take up the business operations once you step down. This is a long process, so keep a adjustment period where you stay on board and assist the person for some time before taking complete time off.
        • Plan for your income – usually business owners income is generated from their business. It could be in the form of profit sharing or salary. So, if you are no longer a part of your business operations, have a process in place by which you will still receive a income from your business.
        • Other points related to insurance, emergency fund and goal based planning remain same for business owners and salaried class.

Jaya:

That makes it clear. So summing up the highlights from this podcast

1. 1. 1. 1. 1. Plan ahead and start early – invest in your early years so your fund has enough time to benefit from power of compounding
            2. Take care of your insurance and emergency fund requirements. – separate cover from employer
            3. Keep separate fund in place for your other goals and responsibilities which comes after retirement, so it doesn’t eat into your retirement corpus.
            4. For business owners, succession planning is the key.
            5. Have a financial plan in place. This will give a realistic picture of when you can retire and will help you track your progress.

That’s it from our end.

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