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Retirement Planning – A Comprehensive Guide

Some people may be married to their work. For others, however, working for long hours becomes a habit. If this sounds like you, then you’ve probably contemplated retiring by your early sixties or late fifties. And this is a goal that doesn’t come easy. It takes a lot of careful planning to successfully achieve the financial standing needed to stop working early in life. If you’re interested in learning more about how to retire early, this guide can help you get started with all the financial strategies needed for getting your early retirement goals done.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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What is considered as early retirement, really?

With regard to financial planning, retiring at any age prior to 60 is considered to be early. Many people find that with the right planning, it’s easy enough to retire by 60. However, for the folks who’re keen on accomplishing this life goal by 55 or earlier, it takes the right kind of financial habits to get there. As a general rule of thumb, if you haven’t set any particular age for retirement yet, you could strive to retire before you get into the senior citizen bracket. This is a reasonable enough objective to have on your financial to-do list.

Some professions make it easier for the people involved to retire by their mid-fifties. For instance, military servicemen find that once their contract in the forces comes to an end, they’re eligible for full pension and retirement benefits. Other professions like teaching and medicine may not be conducive to early retirement, either because it may not be possible for individuals to accumulate a corpus sizeable enough to support their lifestyle after retirement, or because the people in those professions may grow attached to their professions over the years.

Either way, if you’re entirely certain that you want to bid goodbye to the 9-to-5 routine before your golden years, there are many retirement plans in India developed specifically to help you achieve this objective.

How to retire early?

Voluntarily handing in your resignation letter by your fifties, catching a flight out of the city, and hopping from one exotic destination to the next – this is a pipedream that most people in the average corporate setup have had at some point during their career. Interestingly, by planning it right, this need not be just a fantasy. It’s practically possible to achieve the goal of early retirement and enjoy your golden years doing the things you’ve always wanted to do.

So, the question of the hour is this – how to retire early? Is it enough if you simply develop a retirement investment plan? Or do you need to acquire other everyday habits that can help you get closer to this goal? The answer is that the journey to early retirement requires you to do both. You need to adopt the right habits as well as invest in the many retirement plans in India available for this very purpose. Here are some strategies that can help.

10 essential strategies that can help you get started with early retirement

1. Chart out your retirement goals clearly

The first thing you need to take care of before you chart out your financial plan for an early retirement is figuring out what you want your post-retirement life to be like. Do your retirement goals include traveling the world or learning a new skill? At what age do you plan to retire? And how much money do you need to sustain the kind of lifestyle you intend to enjoy during your golden years?

These are some of the questions you need to sort out before you put your plan in place. You also need to establish your retirement budget well in advance, so you can ensure that you save up enough money to meet your everyday expenses after you’ve retired. Determining these parameters clearly makes it possible for you to adopt the right approach towards investing for your golden years.

2. Take stock of your current expenses

To get a realistic idea of the earliest age by which you can retire, you need to take stock of your current spending habits. Even the people who believe they live extremely scrupulously may be surprised to find certain loopholes in their budget, causing them to spend more than they intend to. Something as small as grabbing a cup of coffee to-go each morning before you head to work can add up to a sizable expense by the end of each month.

While it’s not particularly a terrible thing to spend on life’s little luxuries, it’s always a smart move to remain aware of where each penny you earn goes. To get started, you can maintain a monthly account of every expense you incur, no matter how small it is. Compare the data for a set of 3 to 6 months to figure out if there are any outlays that take up more money than they should.

3. Live below your means

One thing most people who’ve happily retired by the time they’ve hit 60 have in common is that they live well below their means. If your expenses eventually exceed your earnings, it’s practically impossible to accumulate long-term wealth. Living frugally ensures that you spend less than you earn, thereby leaving you with enough funds to park in a retirement investment plan.

To begin with, you need to identify the areas in your everyday spending habits that cost the most. For a significant majority of the people, aspects like food, transportation, or housing make up the biggest areas of expenditure. While it’s not possible to eliminate these outlays entirely, it’s certainly feasible to reduce the money you spend on these major heads of expenditure. Some ways you can achieve this goal include saving eating out for special occasions, taking the public transport system where possible, and opting for affordable housing.

4. Eliminate debt

Debt can often be the single biggest deterrent to retiring early. Instruments of consumer debt such as housing loans, car loans, and personal loans often come with high rates of interest. To reduce the amount of monthly instalments, you may have to extend the tenure of repayment. And doing this can take a huge block of years from your life. Alternatively, if you opt to repay your loans early, you’ll not have to deal with high EMIs.

It’s advisable to choose an option that fits in well with your financial situation. Nevertheless, however you decide to deal with your borrowings, try and ensure that you eliminate all debt well before you retire. Carrying your liabilities into your golden years can prove to be a fatal financial mistake that can dig into your retirement fund at best or force you to head back to worst. Both these options are not only inconvenient, but also defeat the entire purpose of retiring early.

5. Obtain an alternate source of income

One source of income may be enough if you’re a frugal spender. However, if the kind of lifestyle you intend to enjoy after you retire involves luxuries of a certain standard, it may be essential to obtain an alternate source of income during your working years. Even if you’re unsure of the kind of life you want to experience post-retirement, it’s worth picking up a side hustle to supplement your primary source of income.

Some side hustles may require a little or a lot of your time, and they may only be good options if you work part-time elsewhere or if you have flexible working hours at your primary job. However, the good news is that side hustles don’t always need to be second jobs that you need to actively participate in. You could even leverage an asset such as real estate to generate passive income for you on the side-lines.

6. Follow a retirement investment plan

Investments undoubtedly need to form the core of your retirement planning. The best time to formulate your retirement investment plan is as soon as you receive your first salary, so you can start saving up right away. To begin with, consider investments that allow you to park small amounts of funds periodically, on a monthly, semi-annual, or annual basis. Systematic Investment Plans (SIPs) can be a great place to start, since they allow you to begin investing with amounts of money as small as Rs. 1,000 per month.

Another key instrument to invest is insurance, so you and your family have a safety net to fall back on, in the future. Mutual funds, equities, and deposits are also excellent options to consider. Over time, make sure you look into other retirement plans in India, so your investment fund can grow into a corpus that’s large enough to support your lifestyle after you’ve retired.

7. Automate your savings

Your savings shouldn’t be something that you only revisit at the end of each year. Ideally, you need to ensure that you contribute to your savings on a monthly basis, so you can make it a habit. Unfortunately, this can be difficult to do each month, because you never know when an emergency situation can take your focus away. A good alternative to this is to automate your savings. You can have an early retirement plan to start with which would take care of your savings to get your early retirement life goals done.

Instead of manually managing your savings plan, you can set up automatic debit mandate that make it possible to transfer money from your savings accounts to your investment accounts spontaneously on the dates specified. This system ensures that irrespective of what’s keeping you busy; your investment plan continues to remain on track.

8. Pay attention to your taxes

Over the course of your career, as you advance up the professional ladder, your income will likely continue to increase. After a certain point, you may find yourself being propelled into the highest tax bracket, where a little over 30% of your earnings will go on to contribute to your tax liability. Without careful tax planning, your taxes can quickly erode your retirement investment budget significantly.

To ensure that you avoid this costly mistake, take advantage of the many provisions available in the Income Tax Act, specifically included with the intention of reducing the tax burden on individual assessees. Section 80C is a key element here, since you can enjoy deductions up to Rs. 1,50,000 for various investments made by you during the financial year. Additionally, if you’re a salaried employee, there are many tax-free perquisites that you claim an exemption on.

9. Revise your retirement plan as needed

To retire early, not only do you need a good retirement plan, but you also need to ensure that it’s financially relevant. And while it’s always a good move to chart out a financial plan for early retirement as soon as you earn your first pay check, it’s also essential that you revisit it from time to time to ensure that it’s the best course of action for you at various stages in life. Failing to modify your retirement plan as needed can make it redundant in as little as 5 years.

Tax laws change frequently, banks and lenders revise the interest rates on loans and deposits, and the return on investment for various options continue to fluctuate year after year. Taking stock of your retirement plan on an annual basis can help you evaluate the relevance of your investment portfolio. It also gives you the chance to take advantage of the newest financial developments.

10. Take the help of a financial advisor

If you’re unsure about how to begin planning for early retirement, you can always talk to a financial advisor and seek their professional assistance. Financial advisors, being experts in areas like giving investment advices, taxation, and general financial planning, can create a retirement plan that’s just right for your specific goals. Alternatively, if you already have a plan in place but require some advice on how to improve it, a financial advisor can help you out.

To develop your retirement plan, a financial expert will require details like the age at which you wish to retire, the amount of corpus you intend to accumulate as your retirement fund, and the kind of goals you wish to pursue in your golden years. With these details, your financial advisor can figure out the best way for you to invest your money during the years you’re working.

Conclusion

By following these small tips, you can realize your dream of retiring early with a reasonable fund to get you through your golden years. When you’re getting started, remember to set reasonable goals for early retirement. Impractical targets will only set your plan back, making it harder for you to revise it later in life. So, start by taking small steps toward the goals you’ve set, and revisit your plan periodically to ensure that it remains aligned with your overall objective.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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2Above illustration is for Bajaj Allianz Life eTouch II- A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N198V01) considering Male aged 23 years | Non-Smoker Preferred | Annual Income =>Rs. 15,00,000 per annum | Indian Resident | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 2,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 7,159. 2nd Year onwards premium is Rs. 7,760. Total Premium is Rs. 2,32,199 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage : 40, Income Payout Percentage : 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and exclusive of Goods & Service Tax/ any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy. Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

^^Get Free Health Management Services upto Rs. 31,000 per year

Health Management Services Frequency Cost (₹)
Doctor Insta-Consultations 3 consultations per month = 36 consultations per year Average cost per session = ₹500
Total cost per year = ₹500 * 36 = ₹18,000
Health Coach
(Diet & nutrition consultations)
1 consultation per month =
12 consultations per year
Average cost per session = ₹500
Total cost per year = ₹500 * 12 = ₹6,000
Emotional Wellness
(Psychologists consultations)
1 consultation per month =
12 consultations per year
Average cost per session = ₹500
Total cost per year = ₹500 * 12 = ₹6,000
Network discounts: Throughout the year Assumption – Total expense on these services throughout the year
Medicines (M) = ₹5,000
Lab-test booking (L) = ₹5,000
Total discounts that can be availed:
M - 10% = ₹500
L - 10% = ₹500
Total per year as per assumption ₹31,000

Note: The above mentioned costs are based on estimated average market price for respective services. T&C apply.

Doctor Insta-Consultations and Health Coach Services are unlimited and the above numbers are assumed only for the purpose of calculation of the yearly benefit.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

 

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