Early Retirement : A kindred spirit

Here is a very interesting blog about a guy (and his family) who are living my early retirement dream.  Many of his examples and thought processes are very "American", but the basic concepts are the same, as some of the thoughts that I have. 

Hoping to get energized by his example, and pick-up a few tips along the way.

MMM

Want to Retire Early? No place for Debt Instruments!

One of my key learnings on this journey to early retirement, is that I need to give my current corpus the best chance of growing significantly over the next several years.  To achieve this aggressive goal, I have decided that my portfolio cannot have any debt instruments!  To put it simply, I will not be investing in Fixed Deposits, National Savings Certificates (NSCs), Post Office Monthly Income Schemes (POMIS), Recurring Deposits (RD) etc. 

 Now this is a bold statement, given that my parents always focused on debt-like products for all their savings.  However, I firmly believe that in the accumulation phase of my career, I cannot afford to take the path of low risk guaranteed returns.  Also, I already have a fair portion of my portfolio in debt-like products that I cannot avoid.  A part of my salary compulsorily goes towards the Employee Provident Fund (EPF) which is basically invested in debt.  I also invest in balanced Mutual Funds, as part of my MF portfolio, and these funds always have a portion of their AUM invested in debt.  Finally, I continue to service a home loan EMI, and I think it would be better for me to pay off that loan (if at all I want to invest in debt) than directly invest in debt instruments.

Do you agree with my strategy?

What are Early Retirement Units (ERUs) ?

I am extremely uncomfortable sharing the actual numbers about my salary, savings goal, final retirement corpus etc in a wide open public forum.  However, I think it would be very difficult to discuss any early retirement strategy without diving into some detail regarding savings percentages, investment plans, asset allocation etc.  So I figured the best way to get around this concern, is to share all my numbers with a scale factor included.  That way I can confidently share all the details, without being concerned about my privacy. 

As an example, if I use a scale factor of 10000, and my monthly salary is Rs30000, I would refer to it on this blog as a monthly salary of ERU3 (Early Retirement Units 3 = Rs30000 / 10000)  Similarly if I invest Rs100000 in Mutual funds, I would refer to it as a MF investment of ERU10 (Early Retirement Units 10 = Rs100000 / 10000)

In this manner, you will get a clear understanding of my savings and investment plans, and can easily apply it to your own situation by scaling up or down appropriately.  At the end of the day, it is the relative proportions of income, savings, investments etc that matter, and not the absolute numbers!

How much do I need to retire?

The big question for all early retirement aspirants is, "How much do I need to retire?".  I know this is a critical and difficult question to answer, since there are several discussions around this very thought in blogs and personal finance websites.  I realise that the final amount that one comes up with is very dependent on your personal situation, monthly spending assumptions, risk taking ability etc.  However, I am sure there is a common thread that you can find in the following thought process no matter where you are from. 

I am going to start with the assumption that I will require ERU1000 to be able to retire early (with some adjustments and frugality in my lifetsyle)  I will also set myself a stretch goal of ERU2000, which is twice my basic target.  This is to ensure that I am focusing on a larger goal, which should help me reach my basic target with more certainity, and hopefully earlier as well. 

To provide some perspective, my wife's and my current combined take home income is ERU7.34.  This means that my baseline target for overall retirement savings/investments is ~11.3 times my annual take home pay.  My stretch goal would amount to ~22.6 times my annual take home pay.  I will try to add some detail on how I arrived at these numbers the next time, but as of now, I think the stretch goal is practically impossible to achieve!  The baseline target sounds more realistic, but I will have to come up with a detailed plan on how to reach this goal. 

Let me know what your thoughts are regarding a safe retirement corpus?  What multiple of your annual take home pay do you need to have saved up, to be ready to retire?

Early Retirement : Networth or Corpus

One of the key vectors on your journey to early retirement, is the net accumulated wealth, also known as networth, or corpus, that you have at any point in time. You need to actively measure and monitor your networth at least once every 2-3months, and make a decision as to what your networth target is going to be when you actually retire. This is not an easy decision and will require a fair amount of planning, some mathematical computations, and the guts to actually implement this plan. For starters, I will try to put down my networth target, and my current networth, so I can see how far I am from my goal, and consider whether my 85% monthly savings target will get me to my goal or not.

I am very uncomfortable sharing the exact details of my personal wealth, salary, income etc on an online forum like this. So I will be publishing scaled numbers on this website. The thought here is for you to get an idea of my income sources, progress towards networth targets etc, without getting stuck in discussing actual numbers.

My next post will cover my networth target, and a plan on how I intend to achieve it.

How to Retire Early in India

I have seen several articles talking about a relatively recent trend of people planning to retire early in India.  In our generation today, this could be fueled by rising incomes/salaries, and the increased load that most of us face in the work environment.  So while in my parents generation, the objective was to keep working as long as possible to sustain ones family (usually extending well into their 60s), in todays generation, people are actively considering retiring in their 50s.  The popularity of VSPs (Voluntary Separation Programs) offered by companies, wherein employees choose to take an early retirement package, and leave the active work force voluntarily, is a clear indication of this growing trend. 

However, the one thing that I do not see in all of these early retirement discussions, is real life examples of people who have achieved their early retirement dreams.  I notice a lot of free advice easily available on the internet covering the basics of savings, investments, compounding, LBYM, etc,  but no real evidence of people successfully applying these concepts and realising their early retirement goals.  I also notice that the folks dishing out this advice, are not the ones who have actually achieved early retirement themselves.  So I really wonder how all of these so called financial planners and investment gurus, can be believed if they themselves have not walked the journey towards early retirement. 

My objective on this blog, is to document my own attempt at early retirement, step-by-step, backed up with my own data, lifestyle choices, investment decisions etc.  Based on my success or failures going forward, readers can take valuable lessons to apply to their own financial planning.  Either way, you as a reader cant lose! You can apply my successes to your situation, and steer clear of my failures to increase the probability of your hitting your early retirement goals.  Good luck to us all!

Early Retirement Killer : Inflation

The single biggest obstacle I foresee to any plans for early retirement is inflation.  Yes, I believe this is a bigger challenge than even accumulating a large enough corpus in the first place to enable retiring early.  India continues to reel under the pressure of rampant inflation, ranging from 8% to 10% in recent times.  The inflation rate is not the same across the various components of my expenses.  In particular there are three areas that seem to have persistently high levels of inflation that show no signs of letting up.

Health care:  The cost of medical care, hospitalization, routine doctors visits, and medicines, continues to go up at what feels like an ever quickening pace.  Health care premiums also continue to shoot up at the same pace, as insurance companies have to raise rates to remain viable. 

Education:  Learning, which should ideally be accessible to every single person, also seems to be becoming more expensive everyday.  Tuition fees from nursery and day-care, to higher education professional degrees are becoming prohibitively expensive. 

Real Estate:  In India real estate has always been expensive, but in recent times, has seen a phenomenal increase in per sqft rates.  Everyone wants to own a piece of real estate, and the increased demand is resulting in continually increasing real estate prices. 

The key challenge I see going forward, is that I will definitely need access to health care and education (for my kids) and potentially also buy real estate (either for my self, or as an investment for rental returns)  But due to steep inflation rates in these areas, (and certainly my salary is not increasing at the same pace) I am getting priced out of the market.  In other words, as time goes by, I will be able to afford less and less, in the health-care, education and real estate space. 

Do you feel the same way? and do you have any suggestions on how to deal with this?