Retirement is the last phase of life when you stop working and wish to live a life of leisure and pleasure. Most people retire between the ages of 60-65 depending on their employers’ norms. Self-employed individuals define their retirement depending on their interests, financial, and health condition. Also, self-employed individuals have all the more reasons to plan their retirement.
Whereas most people dream of a retired life full of fun and frolic, the biggest roadblock is the lack of sufficient funds to lead a comfortable lifestyle till the end of one’s life. No one can predict the age of demise but the average lifespan in India has increased from ~63 years in 2005 to ~70 years in 2020 (Source: Statista). This average figure implies that there is a significant population that would live beyond 70.
Mathematics of Early Retirement: Understand How much you Need to Save
As a thumb rule, your retirement corpus should be at least 200 times your monthly income. But as mentioned earlier, this applies to a presumed retirement age of 60. For retirement at 50, building a kitty of at least 250 times your monthly income is required. You will have to live off this money for 20 to 30 years. This will help you work backwards and start saving.
Let us consider an example. If you are currently earning about Rs 1 lakh per month your retirement fund should be
Rs. 1 lakh x 250 = Rs. 250 lakhs = Rs. 2.5 Crores
So how much money should you save each month to reach this Rs 2.5 Crores figure?
If you invest 35% of your monthly income from the age of 30 when you earn Rs 1 lakh per month:
- Presuming an annual salary increment of 5% and a return on investment of 8%, you will be able to build a corpus of close to Rs. 3 Cr by the time you turn 50.
- Your salary increments could be higher or lower in some years but at no point in time, you should let your investment fall below 34% of your income.
How to do Investment-Asset Allocation for Early Retirement with Insurance Plans?
In the initial years when you start investing, you must allocate a larger chunk of your savings to equity-focused funds which will beat standard rates of interest and generate wealth for you. You should keep rotating your money across funds such that the wealth generated gradually moves to debt instruments. In Unit Linked Insurance Plans (ULIPs), you must allocate at least 50% of your money to equity, if not more.
As you inch towards your retirement age, you can change allocation ratios such that your wealth is preserved. This is the consolidation phase wherein you put together all the wealth that you aggressively accumulated during the Wealth Creation phase.
What Saving and Investment Plans are Offered by Canara HSBC Oriental Bank of Commerce Life Insurance?
Investment for the long-term requires serious deliberation and consideration of many factors and risks that can affect your dreams and aspirations. Insurance-linked investment plans, from Canara HSBC Oriental Bank of Commerce Life Insurance, are very comprehensive retirement plans:
- Guaranteed Income4Life
- Guaranteed Savings Plan
- Invest 4G ULIP Plan
1. Guaranteed Income4Life
If you need more assurances or are starting investments at the age of 40, you can look at the Guaranteed Income for Life that allows you to invest for 10 years and defer the pay outs by another 5 years.
This plan is the best investment when you are very close to your retirement goal and you only need to preserve your wealth for post-retirement income.
2. Guaranteed Savings Plan
Guaranteed Savings Plan is a safe investment option with a defined maturity value and a life cover. Thus, this plan will provide your family’s surviving members with enough money to live through retirement even when you are not there.
This assurance will help you remain stress-free and ensure that your spouse gets a lumpsum amount that should financially secure future expenses.
3. Invest 4G ULIP
On the other hand, the Invest 4G Plan, is one of the most flexible and efficient investment options to aggressively grow your money. You can invest in a mix of equity and debt funds for better growth over long investment tenure.
The plan also has automated portfolio management options, so that you can manage your asset mix without constantly looking. This helps you take advantage of market movements and benefit from equity growth.
Is Early Retirement an Aspiration?
The aspiration of early retirement is in vogue, especially amongst millennials who have also witnessed the boom in entrepreneurship and start-ups across the country and the world. If you belong to this generation, you were probably inspired by the technology revolution and the rise of common men who became IT Czars by working on cutting-edge technologies.
Nursing similar ambitions, you hope to hang up your boots at 50, send off your kids to the Ivy Leagues and go on those dream vacations that you always thought of while at work. This aspiration is not impossible, if you start planning meticulously, focus on wealth creation, and invest systematically. But remember, most retirement savings plans’ thumb rules assume 60 for retirement. If you wish to retire at 50, you will have to invest more aggressively to account for those 10 years.
Retiring at 50 is very much possible if you can become a disciplined investor and use the right instruments to grow your money. Your investments should work as hard as you do to build the retirement nest that will keep you cosy and safe in your sunset years.