Early retirement is a necessity these days

UPDATE: My detailed article on “How to Retire Early in India” got published on JagoInvestor last week.  It also has an Excel calculator for download to help you plan for your early retirement. Check it out!

https://www.jagoinvestor.com/2017/07/early-retirement-guide.html

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A lengthy comment I wrote on JagoInvestor in response to this article

Early retirement is a necessity these days not a myth. A myth would be thinking you will never lose your job that funds your monthly SIP for 30 consecutive years until retirement.

Real-life case study: Headline news about all the 45-year old mid-level managers at TCS/Cognizant/Infosys getting laid off because their industry considers them obsolete and who probably won’t get another job at the same salary for atleast another 3-4 years. An emergency fund of just 6-months to 1 year will not help in this case. These folks have been forced to take early retirement.

I’m a practitioner of early retirement. But after 5 years on the path I have realized some important lessons :

1.) The typical dream of early retirement is to “sit and eat” from the retirement fund alone from age 40 to age 90 which is a span of 50 years. it is hard to pull off as life throws too many curveballs. It is possible if key variables work in your favor .. definitely not a myth as there are real-life success stories 🙂

2.) My alternative definition of early retirement is simple : Finish saving up for retirement as early as possible ideally before you turn 40 or 45. But don’t stop working until you retire old in your 60s. Until then don’t touch the retirement fund. The earlier you finish saving up for retirement the longer you can let compounding do the work for you instead of SIPs for 30 years that depend on keeping your job year-after-year. See Rule of 72 to understand how compounding will double your early retirement corpus every 7-10 years from age 40 to age 65

3.) Once you finish saving up for retirement as early as possible, guess what: you don’t have to put aside those monthly SIPs anymore. That means you can work for a lesser salary at jobs that are more fulfilling and less stressful but fully pays for your monthly expenses supporting kids & elderly parents. most people who want to retire early simply are tired of the job stress and deep down are not averse to working if there is work-life balance.

4.) If you ever lose your job before your old age like the TCS/Cognizant/Infosys mid-lifers: you can use a small portion of your retirement fund to fund monthly expenses for even 3-4 years while you re-skill and find another job after which you can replenish the amount you took out during the jobless period.

I believe this middle path strikes a balance between the cheerleaders of early retirement who replace the stress of a job with the stress of money running out and the nay-sayers who by not saving atleast 50% of their income are going to be forced into early retirement anyway in their mid-40s.

Even Mr.MoneyMustache who I look up to, earns money that covers his expenses meaning he has not touched his retirement fund yet and actually advocates earning while “retired”:

Since year 10, several more years have passed, and because the rental house pays all bills and we still do some work on the side when the boy is in school, the investment gains and income have just been building on themselves. We also paid off the mortgage on the primary house.

http://www.mrmoneymustache.com/2011/09/15/a-brief-history-of-the-stash-how-we-saved-from-zero-to-retirement-in-ten-years

And in the comments section he repeats:

…. Retirement accounts are about 20%, all the rest is in the form of paid-off main and rental houses, and non-retirement accounts. As mentioned in the article, even one rental house pays all the bills, so everything else is just safety margin.

MMM September 17, 2011, 1:17 pm

Although I will never lose my love for an efficient and simple lifestyle, I’ve actually got a secret plan to get quite a bit richer over the next 40 years. It’s secret, because I don’t want this blog to become one of those Big Income Big Spender (BIBS) blogs that everyone else writes. But it’s not complicated – the trick is simply that I’ve been maintaining a positive savings rate, even in retirement.

http://www.mrmoneymustache.com/2012/05/14/first-retire-then-get-rich/

Summary:

  1. Finish saving up for retirement by 40 or 45.
  2. Once that is done, switch to doing enjoyable work to cover expenses until “real” retirement of say 65.
  3. Let compounding double your early retirement corpus every 7-10 years from 40 to 65.  See Rule of 72