Are you thinking of leaving your 9-5 job and looking towards an early retirement?
Do you want to quit the corporate rat race before reaching the official retirement age?
If you want to start your journey towards financial independence and early retirement, this in-depth guide will help you.
This guide to retiring early in India is broken down into 7 parts.
Let us get started.
Table of Contents
What is Early Retirement
Early Retirement is a stage when you attain the emotional and financial ability to give up your paid employment voluntarily to pursue something more meaningful to you.
It allows you to spend more of your time doing the things you love and less of it on things you do not love as much.
You may even get paid for doing the thing you love. But you will be just as happy doing it for free.
The pursuit of early retirement is intricately linked to the idea of achieving financial independence.
You are financially independent when your passive income can cover your living expenses.
Achieving Financial Independence and Early Retirement is a cocktail of 3 key ingredients:
- The skills to earn a decent income.
- The discipline to stay the course.
- A thick slice of good luck.
The Appeal of Early Retirement
The corporate workplace requires a certain type of person.
If you do not find continued meaning in your job, then one option is to try and get out of the rat race.
Obviously, you can also switch jobs. But living as a cubicle dweller till the company “forces” you to retire just does not do it for some.
This workplace disillusionment can set in at any stage of your corporate career. More likely it will hit you in your 30s or 40s.
You will begin to question the value of all that stuff you do every day at your corporate job.
You realise that there is only so much time you have on earth. There must be better ways to spend it.
The idea of early retirement seems to resonate louder with a certain type of person.
They are likely to be thinkers and do not find meaning in endless consumption per se.
For others, there is the choice that being ready for early retirement offers.
You like your job now but who knows what will happen 5 years from now.
You might value the option to do something else at that point.
At its core, the idea is driven by the early retirement ideology. It is about recognising the opportunity cost of continuing in a job that no longer provides you a meaning and purpose.
The ideology becomes vivid when you realise what you are giving up on with each passing year.
What would I do with my life if I did not have to work for money?
Is Early Retirement Possible in India
Early retirement is a choice and a privilege. The fact that you are even reading this makes you part of a select few.
Given this backdrop, any discussion of early retirement in India needs humbleness and humility.
Is it possible to retire early in India?
YES
Is it easy to do?
NO
A large majority do not even believe the answer to the first question and just stop there.
They give up on their dream of doing something more meaningful thinking it is simply not possible.
They believe the idea of retiring early is impossible unless you win a lottery or marry someone rich (both of which are low probability events).
A small minority move past the first question. Once they realise it is not something that is easy to do, they too give up on their dream of pursuing what they really care about in life.
Finally, a tiny minority make the effort to learn and take the first step on this journey.
If you are part of this tiny minority, you are at the right place.
Continue reading this guide to make your dream of financial independence and retiring early in India a reality.
How to Retire Early in India
The pursuit of early retirement will be a test of your financial and emotional abilities.
It will be the most significant and longest personal finance project you will undertake in your life.
You will be making some financial and life decisions that are not considered “normal” in India by conventional standards.
It will impact not just you but also others in your closest circle of family and friends. Hopefully they will (more likely will not) understand your decisions.
The idea of leaving a job voluntarily to retire early is not easy to grasp for most people.
That is understandable and you need to be prepared for it.
In a society like India where conventions and traditions are such a strong part of our daily lives, this is a very normal response.
How to Plan for Early Retirement in India
Planning for early retirement in India requires financial as well as emotional planning.
You need to use knowledge from a wide range of domains. These include personal finance, psychology, philosophy, and behavioral finance.
You will re-discover yourself and your personal values as you embark on the path to early retirement.
Aiming for early retirement is a decision that can take you a few years or decades to achieve depending on your starting point.
More importantly, certain life events can speed up or completely derail your journey to financial independence and early retirement.
Financial Journey to Early Retirement
The key financial figure to keep in the mind when it comes to planning for early retirement is your early retirement corpus.
This is the sum of money that you need to accumulate before you can claim to be financially independent.
This retirement corpus is meant to take care of your living expenses once you quit your job and the regular salary from your employer stops coming in.
There are 3 pillars that form the foundation of your financial journey towards early retirement.
Each of these pillars is important, but also needs the active support of the other 2 pillars to deliver the required result.
Boost Your Income
The first pillar of financial independence involves boosting the income you have coming in every month.
If you are a salaried professional, the biggest source of income will be your salary and bonuses.
Now, as soon you as think about boosting your income your mind might switch to identifying newer sources of income.
The best chance you have of increasing your income, however, is by focussing even more on your primary job and core work skills.
If you have been in your industry for a decade or more, you already have a base level to work off.
The idea is to capitalise on your existing skills and network.
Here are some ideas to get you thinking:
Take up the effort you are putting into your job up a notch.
Get so good at it that they cannot help but notice the change.
This may sound counter intuitive since you are thinking of early retirement because the job itself has become unappealing.
However, the objective here is to earn more using your current skills by moving up the income scale.
It is not meant to be an exercise to find meaning in your existing job.
Consider relocating within India or abroad to improve your earning opportunities.
Take up any relevant training / certifications to boost your skills and employability.
Think Beyond Your Job
In addition to your salary, you should indeed think of other ways to start generating additional income.
Here are a couple of ideas to get you thinking:
Is your spouse earning an income presently? If not, that may be an opportunity.
Can you start a side hustle without breaching your employment contract terms?
A note of caution on side hustles since the idea looks very tempting.
Always look for something that has a path to scale. You are already in a job where you are exchanging your time for money.
Do not be in the same game for your side hustle as well. You only have 24 hours in a day.
Side hustles where you exchange your time for money may not make sense for boosting your side income.
Taking steps to boost your income will have an enormous impact on the journey towards early retirement.
Lower Your Expenses
The second pillar of financial independence involves taking greater control over where and how you spend your money.
This is not about signing up for a card that gives cashbacks or cutting down on daily cups of coffee. Those are just cosmetic changes.
Instead, you need to go big.
You may need to make major lifestyle changes and radically re-think the way you live and consume stuff.
The main impact here will come from the choices you make on the big-ticket expenses.
This includes the decisions you make on housing, car, marriage, kids, vacations, and other discretionary items.
Here are some tips to get you thinking:
Do you really need a 3-bedroom house, or can you manage with 2 bedrooms?
Are you borrowing money to keep up with your current lifestyle?
How important is it to live in a certain locality only?
Can you do without buying branded products when making a purchase?
I can keep up the list going but you get the idea. The point here is to track every expense you are making monthly.
And then target the big items on your spending list.
It is not about pinching pennies or suddenly starting to live like a monk.
It is about bringing mindfulness into your spending decisions and moving away from mindless consumption.
80% of the monetary impact will come from 20% of your decisions on cutting your spending.
Align Your Spending with Your Core Values
It is important to make sure the decisions you make about cutting spending tie in with your personal values in life.
There is no point going for extreme frugality if it makes you miss things you deeply value.
You should continue to spend money on the 1-2 areas that bring you immense joy. At the same time, mercilessly cut down spending in all other areas.
Many things in life are best done when you are young.
Therefore, it is important to strike the right balance between the short-term pleasures from spending money and your long-term goal of early retirement.
Early retirement is as much about enjoying the journey as it is about the destination. This is a key early retirement planning tip.
The worst thing you can do is to achieve early retirement and only have memories of regret when you look back.
Invest Your Savings & Learn Personal Finance
This third pillar of financial independence will grow the money you save each month.
It involves applying the basic rules of personal finance and investing your savings.
Spend less than what you earn.
Invest what you save.
And Wait.
Some money management concepts are critical when it comes to investing your savings:
Savings Rate
Your savings rate is the percentage of your post-tax income you save every month after taking care of all your living expenses.
It is common for people focussed on early retirement to save 30%, 40% or even 60% of their monthly income.
The higher your savings rate is, the more you can invest and the faster you reach your early retirement date.
Asset Allocation and Diversification
Some of us end up groggy all day if we do not get our 8 hours of sleep.
On the other hand, there are people who jump around like bunnies all day on just 3 hours of sleep.
It is same when it comes to your investing your money.
Asset Allocation is the choice you make between sleeping well and eating well when dealing with your money.
Compounding
Small steps repeated over an extended period can lead to amazing outcomes.
Remember the story of the thirsty crow that kept putting small stones in the earthen pot to raise the water level.
The action is ordinary – Pick up a stone and drop it in the pot. Repeat.
The outcome is extraordinary – The water level rises, and the crow can quench its thirst.
That is compounding.
Regular investing done month after month is an ordinary action. With patience and time, it leads to extraordinary outcomes.
Conflict of Interest
Walk into fancy restaurant with your partner and you are presented with a wine list.
Since most of us do not know much about wines, we ask for a recommendation.
Chances are that you will be recommended an expensive wine instead of a cheaper alternative, which would have tasted just as good.
The restaurant is a business, and they are interested in making you spend more.
Your interest would have been better served by a similar tasting but less expensive bottle.
That is a conflict of interest.
Whenever you are being recommended a mutual fund, an insurance policy, or any other financial product, always be alert for conflict of interest.
What is right for the person selling it, may not be the right thing for you.
Debt is Your Enemy
Say NO to debt.
Carrying any debts or loans is like driving your car in reverse.
Debt takes you further away from your desired destination of early retirement, not towards it.
All your hard work will come to nothing if you don’t eliminate debt from your personal financial life.
You put your future at risk by taking loans to live it big in the present.
That is a recipe for financial ruin.
Learn Personal Finance
If you are not good with money you will just have to learn about personal finance as soon as you can.
There is simply no way around this if you intend to pursue financial independence and early retirement.
Do not be put off by complex mumbo-jumbo talk about alpha, beta, momentum, market capitalisation and what not.
All these terms are invented to make simple things sound exotic.
The only person who will always act in your best interest is you.
Some things simply cannot be outsourced.
This includes the knowhow about making good financial choices.
A good financial adviser can help you get started. But you still need to personally learn the basics of investing and managing your money.
How to Invest for Early Retirement
Investing for early retirement differs from investing for a regular retirement. The key difference between the two is your time horizon.
You try to reach your target retirement corpus in a much shorter period.
This requires a greater focus on savings and willingness to tolerate the volatility of financial markets over an extended period.
You need the emotional resilience to be focussed on the eventual outcome, without getting swayed by the usual up and down movement of the financial markets.
Simplicity, flexibility, and low costs should be the key features as you figure out how to invest for early retirement in India.
Early retirement investing requires a laser focus on boosting your savings rate.
A higher savings rate will allow you to invest significantly higher sums of money each month.
You need to invest at least 2X to 3X times compared to someone with a similar profile to yours who is saving for a regular retirement.
Make sure when you are investing for early retirement, your portfolio reflects your real risk tolerance.
The idea of early retirement is not suitable for everyone. Similarly, this aggressive approach to savings and investing is also not suitable for everyone.
Investing for early retirement requires you to play the long game.
You need to adjust this to your own investing style that better aligns with your personality.
The goal of early retirement in just one amongst the many financial goals you will have in life.
Your personal financial plan should outline all those goals, so that you do not end up chasing financial independence in isolation.
It is also important to avoid financial mistakes in this process.
A wrong decision can ruin your chances of ever being able to achieve your dream of early retirement.
When handled properly, these 3 pillars will propel your financial journey forward as you pursue your dream of achieving early retirement.
Emotional Journey to Early Retirement
The emotional journey to early retirement is as important as your financial journey to hit this personal goal.
As a society, we have been primed to view the accumulation of more, bigger, and shinier stuff as a sign of success.
At some stage it dawns on you that more stuff does not make you happier.
Once you have gotten to “your” enough, you will not make yourself any happier by pushing far beyond it.
Happiness beyond enough lies in spending your time pursuing things that mean something to you.
You are unique.
The things you find meaning in will be unique to you as well.
The emotional journey to early retirement consists of 3 broad phases:
The Early Excitement
The initial phase of your journey to early retirement will be full of excitement.
As you learn more about financial independence and pursuing meaningful work, you may personally connect with it.
You will find yourself reading and watching a lot of stuff related to the subject.
More importantly, you will start getting better with money management.
You will be able to identify a lot of simple changes in your financial habits that can make a major difference.
Your friends and family too will notice this change in you.
At times, you may even drive people nuts by constantly telling them about better ways to save and invest money.
You are well on your way to retiring early and the future looks promising.
You are excited thinking about what life will be like if you achieve early retirement.
The Dreaded Plateau
After the initial period of early excitement, you will hit the dreaded plateau.
All the easy work has been done and you are now looking at a tough slog. The boring middle has arrived.
Even though you are doing all the things you are supposed to be doing, the retirement corpus and date seems too far out.
This is also the time that your other responsibilities will start to loom large as life throws some googlies at you.
Some of these include:
You may welcome a new family member.
Funding your kid’s education.
Health issues with your parents.
Your spouse may give up a career to spend more time taking care of the family.
Each of these developments will have an impact on either the income you are bringing in or the expenses you are incurring.
You will need to constantly juggle your priorities in life. This can lead to emotional stress when trying to save money, if not handled well.
This middle phase will test your patience and perseverance.
You may begin to wonder if early retirement is really going to happen for you.
How well you handle this middle phase will be a test of your grit and determination.
The clearer your reason on WHY you want early retirement, the easier it will be to navigate this phase.
The Final Snowball
Getting to the first 40% of your planned retirement corpus is the hardest because the journey seems awfully slow.
Even though you may be saving and investing every month, the results will not immediately show up.
The first two phases will get you to around 40% of your desired corpus.
Once you are there, that is when the magic of compounding starts to do its work.
Also known as the snowball effect, the money you have saved till now starts making more money on its own thanks to your past investments.
In addition, you will still be adding fresh savings to this corpus.
The result is like a snowball that keeps growing bigger and bigger as it keeps rolling.
The outcome of your hard work and persistence will now be right in front of your eyes.
You will need to evaluate if you still want to pursue early retirement.
Perhaps some changes in your personal circumstances now require a rethink of that goal.
More importantly, this is also the phase where you need to plan how you will be spending your time after you retire early.
How Much Money is Enough to Retire Early in India
So how much money is needed to retire by 40 or how much money is enough to retire in India by age 50?
Is it 5 crores, 10 crores or even more?
Although these are the most frequent questions that pop up, but they are fundamentally flawed and here is why.
This is because we are talking about YOUR retirement. It is about YOUR way of living and choosing what is important for YOU.
The right answer for you may look quite different from someone else who is also pursuing early retirement.
So, the correct question for you to ask is this:
How much money is enough for ME to retire early?
You are thinking of pursuing something unconventional in India.
It also means that you want a future which is different from our society’s norm.
Therefore, your retirement corpus too will need to reflect you as a person.
Your financial independence journey will be unique to you as an individual (or as a couple with your spouse).
Now let us see how to work out the estimated retirement corpus that you should aim for.
Estimating Your Early Retirement Corpus
Unlike traditional retirement when you leave your job in your 60s, early retirement means that you aim to leave your 9-5 job in your 30s, 40s or 50s.
This means that your retirement corpus needs to be large enough to support you for a greater number of post-retirement years.
Getting this corpus figure right is critical since you may only have one shot at getting this right.
An uncomplicated way to calculate this number for your retirement corpus is the so called 4% rule (also known as the 25 X rule).
As per this guideline, your ideal retirement corpus should be at least 25 times (25 X) your annual living expense in the year you decide to retire.
For a deeper dive on calculating your early retirement corpus, check out the detailed article on how much money is enough to retire early in India.
Does the 4% Rule Hold in an Indian Context?
The origin of the 4% rule came from the study done by Bill Bengen in the United States.
There is a lot of discussion amongst financial experts about the 4% or the 25 X rule.
The 4% rule is based on the financial returns of US markets in the 20th century.
When applied to other countries (apart from Canada), the 4% rule has not been a perfect model to plan your retirement corpus.
There are also some obvious differences between the US and the Indian contexts.
Compared to the US we have had higher inflation in recent decades.
Moreover, we are still an emerging economy with limited historic data on our financial markets.
So, is it sensible to adopt the 4% rule for an Indian context given such differences?
My view is that the 25 X rule is a good starting point when planning your retirement corpus. However, it should not be taken as a gospel truth.
The key is to be flexible.
No one can predict the future rate of return with any certainty. The only thing you can control is your spending.
Several factors that are unique to you should dictate if you should have 25 X, 35 X, or even 50 X of your expected annual expense as your early retirement corpus.
Let us look at some of these factors and how to modify this 25 X rule for your specific situation.
Your Industry and Skills
If you run out of money 15-20 years after you leave your job it will be exceedingly difficult for you to get back into the labour force.
This is more so if you work in a rapidly changing industry like IT.
Newer technologies can make your past knowledge and skills redundant.
As a result, your chances of getting re-employment after a gap of 15-20 years would be extremely low.
Therefore, the greater the chances of your work skills becoming obsolete, the greater the margin of safety you should build in when calculating your early retirement corpus.
Your Post-Early Retirement Plans
Most people who pursue early retirement do not do it just because they want to sit at home and watch TV all day.
Their main motivation is the opportunity to spend more time doing the things they love.
You are the best person to judge how you intend to spend your time once you hit early retirement.
If you intend to spend your days watching TV all day, that is fine too.
Hey, it is your life. It should be none of anyone’s business on how you spend your time.
But what you choose to do after your early retirement has an impact on the margin of safety you should build into your retirement corpus.
If you intend to spend your time doing volunteer work for no monetary compensation, then you should consider building a higher factor of safety into your corpus.
On the other hand, if you intend to start some hobby business, work as a part time consultant, or do any work that brings in some income then you can manage with a lower safety cushion.
Know Your Personality
Do you get worried quickly or do you stand calm even as storms rage around you?
The more conservative your attitude towards risk and volatility, the more safety you should build into your retirement corpus.
Dealing with financial uncertainty is much easier when you are still in the work force and bringing in some regular income.
However, once you are purely living off your retirement corpus, the emotional impact of swings in financial markets will be much stronger.
Our attitude to risk continues to change as we grow older.
There are more 20-year-olds who go bungee jumping than 60-year-olds.
Therefore, even if you feel confident about your risk-taking ability today, do add in buffers in your retirement corpus keeping this factor about your personality in mind.
These are just few of the factors that impact the early retirement corpus for your specific situation.
You are unique when it comes to your personal situation and your early retirement corpus should reflect this uniqueness.
Transition to Early Retirement
Following the steps outlined thus far will get you closer to financial independence.
Once you get the hang of the 3 pillars of financial freedom, you just execute the plan.
You need to repeat the same steps month after month and year after year.
The process is supposed to run on autopilot. That also helps to minimise decision fatigue creeping in.
If you persevere with this over several years, you are set for financial independence.
The next stage involves preparing for a smooth transition to early retirement.
As you prepare for this transition there are some common issues you will face.
Here is an overview for understanding and handling these issues:
One More Year Syndrome
One More Year Syndrome is the urge to continue in your job for another year even though you have achieved financial independence.
At its root lies fear.
It is the fear of not having enough money to retire early. It is the anticipated regret about pulling the trigger too soon.
Add to that, the fear of the being unable to make smooth transition to a life filled with meaningful work.
The One More Year Syndrome makes you believe that another year in your current role will help you overcome all these fears.
When you have lived the corporate life for a decade or two it starts to define you. You know how things work and how to navigate the maze of daily life.
Even if you do not enjoy it that much, it still gives a structure to your daily life.
Early retirement is about giving up this set and familiar routine for a completely unique way of life.
The one more year syndrome in a mental response to keep us safe and avoid harm that comes with uncertainty.
Stop Playing the Game if You Have Already Won
There is certain thrill to the process of achieving financial independence.
Investing your savings in an asset and then see it rising over a period has a kick to it.
The process of saving and investing can sometimes become all consuming.
It is not easy to stop playing this game of investing and growing your net-worth simply for the thrill you may be getting out of it.
Continuing to play this game beyond a stage is risky.
You may be taking undue risks with the early retirement corpus you have already accumulated.
The objective of financial independence is to minimise the impact of money on your wellbeing.
Once you have accumulated the required retirement corpus, it is time to pause.
You should stop playing the game if you have already won.
Your primary objective from hereon is to preserve the corpus you have already built. Wanting to grow your portfolio should only be a secondary objective.
You have reached the wealth preservation phase. The approach you now take for managing your money should reflect this fact.
It is important to avoid unnecessary risks with your retirement corpus once you have achieved your financial independence objective.
A mistake at this stage can undo all your years of arduous work.
Stress Test Your Retirement Corpus
One of the greatest fears for any retiree is of running out of money when you need it the most in your later years.
This is even more so for early retirees. You need your retirement corpus to support you for a greater number of years once you leave your paid employment.
One way to overcome this fear is by stress testing your retirement portfolio.
A retirement corpus stress test is an exercise that helps you gauge the financial strength of your retirement corpus.
To conduct this test, you need to do a what-if analysis.
This will help determine if your retirement nest-egg can cope with any future economic or personal downturns in your life.
The results from such a portfolio stress test will show if you need to make any adjustments to your retirement portfolio.
Early Retirement Date
Choosing the exact date for pulling the trigger on your early retirement is a major decision too.
You can liken this to putting the finishing touch at the conclusion of your journey to early retirement.
Picking your early retirement date depends on your unique situation. Several factors will dictate when the right date is to quit your 9-5 life.
Amongst others these include the plans your spouse has for their career, your dependents and tax considerations.
You should start addressing each of these factors at least a year before you plan to pull the plug on your 9-5 corporate life.
Doing so will allow you to finetune any last-minute issues without being rushed into addressing them at the last minute.
This in turn will ensure a smooth transition to early retirement.
Early Retirement Anxiety
Early retirement anxiety is a feeling of fear, uncertainty, and dread about your upcoming retirement.
It can involve mild, severe, or obsessive worry about your post-retirement life.
Early retirement is a huge life transition, so it is perfectly normal to experience retirement anxiety as the day nears.
The good news is that most people who transition into early retirement can cope on their own by taking simple measures.
The key to coping with early retirement anxiety lies in awareness and timely preparation.
What to Do After Early Retirement in India
Early retirement is not just about retiring FROM something.
It is also about retiring TO something.
What keeps you motivated when you are pursuing early retirement is the thought of what you will be doing once you hit that magic date and corpus.
But planning for your life after early retirement is just as important as the journey to reach financial independence.
What life looks like after early retirement will be different for everyone.
Just like the process of getting there, life after hitting your number is also personal to you as an individual.
For some it may involve part-time consulting in the industry they have been working in.
Someone else may spend time pursuing a childhood passion or hobby.
And some others may spend time contributing to a social cause close to their heart.
What is certain though is that you are setting yourself up for a disappointment if you are not clear on how you will spend your time after early retirement.
It is unlikely that you will be content with just chilling at the beach or binge-watching videos all day.
That can get very boring, very quickly.
(If you are reading this while sitting in a weekly management meeting, then chilling at a beach sounds anything but boring. I hear you.)
Preparing in advance for life after early retirement is critical to make sure you enjoy the full benefits of the challenging work you put in to hit that milestone.
Preparing for Life After Early Retirement
You may only be keen to pursue financial independence instead of retiring early. Perhaps you are happy doing what you do for a living currently.
You just seek the freedom to quit without any financial worries if your current job stops being as much fun at some stage in the future.
If you are lucky, you already have a clear passion in life that you want to pursue post your early retirement.
It could be pottery, teaching, painting or whatever else that lights your FIRE!
For everyone else pursuing early retirement, the thought first germinates because they do not enjoy what they do for a living.
Very few of us start our career in a field that aligns with our inner desires.
Given the intense competition for jobs in India, you may have picked your current career based on what was the first job that came along.
It could also be parental or peer pressure that forced you to pick a particular subject to study or a career to pursue.
As the years go by you realise there is a growing disconnect between what you enjoy doing and what you do to earn a living.
You may not know what you will do after retiring but you know one thing for sure.
You do not want to continue doing what you are doing presently to earn a living.
I just want to exit the corporate rat race.
The Pursuit of Personally Meaningful Work
At a personal level we all eventually look for meaning and purpose in our lives.
The desire to transcend beyond our self and become part of something larger than us.
Meaningful work and a life filled with purpose lies beyond the consumerist society that we trap ourselves in.
Decades in the corporate world can shape our minds into the single-minded pursuit of acquiring more with no concept of enough.
An endless mundane race for more profits, higher salary, bigger job titles and rewards for the benefit of just ourselves.
On the other hand, as one of the 5 elements of a happy life, meaningful work allows us to impact the lives of others around us in a positive manner.
Early retirement offers the opportunity to transition from the mundane to personally meaningful work that you will love doing.
Here is the thing though – Early retirement will not solve your problems if you reach there without clear plans about what you want to do next.
So, if you are pursuing early retirement only because you hate your job, then there are few things you need to be doing at least 4-5 years before you hit your early retirement target date.
Identify What You Love Doing
Not everyone is born with a clear passion or knows what their passion really is.
On top of that, years spent in a corporate job can make it even harder to hear your true calling.
The most common way is to discover it by talking to your spouse, friends, parents or google!
If you do not know what you absolutely love doing think about this:
Which is the first website you visit when you start browsing the internet for fun?
Which field are you always updated on with the latest developments outside of your daily work?
Is there something you do where you lose sense of time when you are immersed in it?
Do friends and family normally ask you for advice on a particular subject area?
If you see a common theme in your answers to the 4 questions above, that may be a clue about what makes you happy.
Identifying what you love doing is critical to make the most of your personal project of early retirement.
Be True to Yourself
You must be true to yourself here. There is no point picking something just because it will look good when you talk about it to others around you.
You have lived enough years doing things that made you look good to others.
Now is the time to live the life that makes you look good to yourself irrespective of what others think.
Early retirement is all about the freedom to spend your time doing what you personally love.
Take the time to clearly figure this out at least 4-5 years before you hit your early retirement date.
Financial Independence and Early Retirement in India
Financial Independence Retire Early (F.I.R.E. for short) is an idea that has picked up in recent years around the world including here in India.
Achieving FIRE is about your savings rate, perseverance, and luck.
Many people believe that having a high income is the most crucial factor.
While a higher income helps with FIRE, but it is the high savings rate out of that income that decides if someone can pursue FIRE.
Someone earning even 5 lakh a month but spending 95% of that does not have much chance of achieving FIRE.
For most high earners, as their incomes increase, their expenses increase as well due to lifestyle creep.
On the other hand, someone earning 1 lakh a month but saving 40% of that is much more suited to achieve FIRE.
Your ability to achieve FIRE depends on your starting point, the hand that life deals you and the personal decisions you make.
Types of FIRE
There are different FIRE stages that you can aim for.
These are driven by your personal situation as well as the level of financial independence and early retirement lifestyle you desire.
The common ones are as below:
Lean FIRE
You achieve lean fire once your early retirement corpus can cover all your basic living expenses.
This is the first level of financial independence.
You do not have to laugh at your boss’s terrible jokes now if you do not want to.
A lean FIRE corpus has a limited safety cushion though.
It may be unable to cope with significant economic or personal downturns during your early retirement years.
This is why it is referred to as “lean” FIRE.
Regular FIRE
You achieve regular FIRE once your early retirement corpus allows for some fun spending as well as a higher safety cushion.
A regular FIRE corpus is typically calculated by adding another 5X-10X to your lean FIRE number.
This is the base case corpus for an early retirement.
Fat FIRE
You get to a fat FIRE status by adding a big safety cushion to your regular FIRE number.
Getting to a fat FIRE state boosts your resilience to cope with any significant retirement income shocks.
Coast FIRE
Coast FIRE or Barista FIRE is an alternate way of progressing from lean FIRE to regular FIRE.
You switch from a high stress job to something less demanding even if you must compromise on your salary.
Your salary in this new job is enough to cover your living expenses. This allows your lean FIRE corpus to keep compounding and get to a regular FIRE corpus.
An example of this coast FIRE lifestyle would be to start working as a part-time contractor with your former employer.
Pursuit of FIRE in India
When it comes to the idea of FIRE, it is commonly believed that it is more suited to western countries with different social and cultural norms compared to India.
While that is open to debate, there are some unique advantages and challenges to the pursuit of financial independence and early retirement in India.
Unlike the west, we normally have a stake in the long-term financial support for our dependent parents and kids.
The Indian FIRE Advantages
There are some specific advantages when it comes to retiring early in India as compared to other countries.
Since these things seem so normal to us, it is easy to miss noticing them as distinct advantages when planning for early retirement.
Frugality is in our DNA
Frugality comes naturally to us Indians.
If you have grown up in a middle-class family in India, it is normal to see clothes, toys and books passed on from the older siblings to the younger ones.
Even a T-shirt we buy goes through multiple usage patterns – It starts the journey as a “party wear” T-shirt.
It then goes through the stages of becoming a house wear T-shirt, a night wear T-shirt, a dusting cloth and finally a rag to wipe oily stains before it leaves the house.
Something like this would be unheard of in another culture, where money would be spent to get a separate piece of cloth for each of those uses.
As we grow up with this frugal nature, we extend this behaviour to other parts of our lives as well.
Whether it comes to reusing water bottles or squeezing that last bit of toothpaste from the tube, we have an ingrained knack for getting the maximum bang for our buck.
All this comes to us naturally without even actively trying to save money.
Once you put your mind to saving money, there are tons of ideas you will come up with.
We are naturally gifted to think this way. Not everyone in the world operates like this so this approach to frugality is something special to recognise and cherish.
Geographic Arbitrage
India is a large and diverse country with major differences in cost of living depending on where you live.
Unlike some other nations where the cost of living does not vary much across the country, in India it is possible to lower your living costs by 30-40% by moving to a tier II city from a metro.
Even moving to a less central part of a metro can deliver significant cost savings.
This offers an incredible opportunity for someone keen on pursuing early retirement.
You can spend your early years in a tier 1 city or overseas to expand your income opportunities.
Thereafter, once you are ready to hit early retirement, you can choose the lower living cost of a less expensive location in India.
There may be any number of reasons why you may continue living in a metro post your early retirement.
However, just being aware of this geographic arbitrage in India is an advantage.
The Indian FIRE Challenges
Just as there are advantages, there are also some challenges in pursuing FIRE in an Indian context.
These can have a significant impact on your FIRE journey.
Lack of Social Security
Unlike the US or some other countries, there is a minimal social safety net in India.
More so, if you are in the middle or higher-income category during your professional career.
While there are some state sponsored options for education and healthcare, they may not meet the expectations of a corporate professional pursuing early retirement.
Similarly, there are no state offered unemployment benefits to look for if you happen to suddenly lose your job in India.
Therefore, in addition to your early retirement goal, you also need to plan separately for your other financial goals like an emergency fund, kids’ education, and healthcare.
This limits how much or how quickly you can add savings to your early retirement corpus.
Life can always throw some surprises which could have a financial or a non-financial impact on your plans.
The lack of social security means that you could be forced to dip into your early retirement corpus to support your other financial goals, should any adverse life event happen.
Infrastructure Challenges
While the geographic spread of India offers the opportunity to lower your cost of living, it comes at the cost of compromising on basic civic infrastructure.
If you have spent your professional career in a tier 1 city, you may have become accustomed to certain aspects of daily life that you now take for granted.
This includes easy access to private healthcare, reliable utility supplies, a well-connected airport, and varied options for leisure & entertainment.
The physical and social infrastructure challenges of a less developed location can act as a limiting factor.
Your ability to drastically lower your cost of living in early retirement may require a compromise on some basic infrastructure needs.
On the positive side things are constantly improving in India.
This is less of an issue if your target date for early retirement is still many years away.
Bonus Tips for Early Retirement in India
As we reach the end of this guide, here are some bonus tips for pursuing your early retirement dreams.
The fact that some of these tips come across as unconventional should be no surprise.
The idea of early retirement in India is unconventional and therefore requires doing things differently.
As you pursue your dream, you will need to make some decisions which most people around you will not consider “normal.”
Some of these tips may resonate with you while others may seem outright wrong and stupid. That is fine. There are no right answers.
Your journey is personal and the decisions you make must be right for you.
Do not do something just because I or someone else is telling you to do it in a particular way.
I have no idea what your specific circumstances are, so what worked for someone else may not work for you.
Here we go:
Do not Buy a House – Rent It
As you start your career and get your first income you have the maximum degrees of freedom.
You can make life & career decisions with minimal constraints.
Things will change once you get married. You no longer have the same degree of freedom.
You are now impacting two lives with each life choice you make. It is no longer only about you.
Once you become a parent, prepare to say goodbye to clubbing every weekend. In addition, your degrees of freedom are further reduced.
Decisions you make now will be further constrained since they need to make sense for your entire family.
This is also the stage when conventional wisdom says that you should buy a house.
But here is thing: Buying a house at this stage will further limit your degrees of freedom.
You will invest a lot of your money and emotions into your house.
Therefore, you will be much less willing to relocate should another career opportunity show up in a different city or country.
You may still take the new career opportunity but you now to have to overcome an additional mental hurdle.
You will be giving up living in a house you love (not to mention the hassle of finding a tenant or servicing the loan).
Staying on rent allows to you to maximise your opportunity to grab an alternative career opportunity without a house or a loan weighing you down.
Do not Resist Temptations – Avoid Them
It is hard to resist temptations when you are surrounded by them.
If your neighbours are driving fancy cars or living the high life, it hits you in the face every single day.
This can lead to two outcomes:
You will raise your spending levels to blend in. You do not want to live as an outcast in a social group.
OR
It will be huge emotional drain as you and your family try to resist these temptations every day.
It can be especially hard to explain this to kids.
Why cannot they have the latest smartphone if all their friends have the newest gadgets or the coolest sneakers?
Remember – You are the one pursuing early retirement, not your kids.
There is a better way to handle this situation.
It is much easier to avoid temptations than to resist them.
Instead of living in a place that you can afford, live in a place that is a notch below that.
No – I am not suggesting that you go and live in a run-down apartment.
All I am suggesting is to lower your standard of living by a notch or two.
You and your family will still be able to blend in socially. That too at a living cost well below what you would have spent otherwise.
You will also experience enhanced emotional wellbeing when living this life.
The money you save with this lower cost of living can be put towards your early retirement corpus.
Your Spouse Can Make or Break Your Early Retirement Dream
Do not underestimate the importance of your spouse as an equal partner in pursuing your dream of an early retirement.
There will be sacrifices required at various stages of this journey.
If your spouse is not on the same page as you when it comes to early retirement, it can lead to major conflicts.
Imagine you saving every single rupee for a whole month. And then your partner goes blowing it all up on a single impulsive purchase.
Some fireworks are guaranteed!
So, before you commence working towards early retirement make sure both of you are aligned.
Why is early retirement important and do both of you see the same value in it?
Your spouse may also be pursuing an independent career. Make sure that any plans you have about early retirement are also aligned with the plans that your spouse has for his/her own career.
If you are still single and are clear about pursuing early retirement, discuss this with your future life partner before you get married.
There will be enough things to fight about once you get married. You can avoid adding your desire to retire early to that list by discussing it upfront.
Keep Your Early Retirement Plan to Yourself
The pursuit of early retirement is a lonely journey.
The pursuit of this dream makes you part of a ridiculously small group in our society.
Some of your friends will appreciate you for this, but most people around you will never be able to understand it.
When your peers are buying big houses or the latest gadgets, you may feel left out.
You will find yourself at the receiving end of comments on how you are being too frugal and not enjoying life.
You will need to find your own personal balance between your current consumption desires and delaying gratification to a later stage.
There is little to be gained in telling the world about the personal journey you are on.
Your internal drive to achieve early retirement should be the key driver to keep you going.
There is another good reason to keep it to yourself.
Your employer or co-workers may see this as a lack of commitment to your current job or career (even though you know that is not the case).
This will act to your disadvantage when being considered for promotions etc.
The idea of early retirement is not for everyone. It challenges the traditional narrative of the society we have been moulded to accept.
You are like the lone crab trying to climb out of the basket. All the crabs around you will make every effort to pull you back in.
Conclusion
The pursuit of financial independence and retiring early in India is a challenging but not an impossible dream.
Admittedly, it is not for everyone since you need certain factors to work in your favour as you undertake this journey.
Nevertheless, the ideas outlined in this guide will help you improve your personal finance life in general.
Even if are not able to or intend to retire early, getting in better control of your personal finances can prove helpful as you navigate your life and career.
And that is a great outcome for the time you spent reading this guide to early retirement in India.