Personal Finance

Planning to retire early? Look beyond finances

B Venkatesh | Updated on September 24, 2018 Published on September 23, 2018

Work is not just about earning money to sustain lifestyle requirements

The early-retirement movement — F.I.R.E. (Financial Independence, Retire Early) — seems to be catching on among young professionals.

In this article, we urge you to consider certain factors as you work towards early retirement.

Early close

Work is not only about earning money to sustain your lifestyle requirements; your time is spent meaningfully when you are employed.

The upshot? You should be meaningfully engaged post-retirement; otherwise, your healthcare costs could go up. Why? Evidence shows that physical health deteriorates sharply when you are not productively engaged, whether for monetary compensation or otherwise.

This is one reason why retirees face high risk of deteriorating health, including dementia.

Next, you have to tighten your current consumption and, perhaps, even live on a shoestring budget to save enough money to retire early.

Why? Assuming you start working at 22 and retire by 45, you will have 23 years of income.

This income stream will have to support your current lifestyle and also build a corpus for 40 years of your post-retirement living, considering a life expectancy of 85.

We urge you to aim for early financial independence without compromising on your current happiness.

Financial independence

You achieve financial independence when your passive/investment income is enough to take care of your lifestyle expenses, including your monthly household expenses and discretionary spending such as on exotic vacations and fine-dining. You can choose to work even after you have achieved financial independence. Why?

For one, you will be physically active and productively employed.

This will significantly reduce your healthcare costs. Importantly, your employer could cover your basic health care.

If so, you can save your healthcare portfolio to pay for critical care and other healthcare costs not covered by your employer.

For another, you are more likely to enjoy your work when you hold the retirement option.You will then work because you want to, not because you have to. You could, alternatively, explore phased retirement, by working as a consultant to your former employer.

Or, you could do what appears to be common among the F.I.R.E. community — start a blog and engage in paid-speaker assignments to advise the world on early retirement.


You should aim to achieve financial freedom early. As to whether you should retire early would depend on two important factors. One, can you productively engage yourself post-retirement? And two, do you have enough contingency reserves? The second point is important because an emergency could knock at your door when you least expect it. As a working executive, you may have ways to raise money in quick time, through short-term loan from your employer or from the bank; it is highly unlikely that you will receive a loan if you are retired. Of course, a debt-free self-occupied house can be used as a collateral to raise emergency money through a regular loan or through a reverse mortgage line of credit. But what if you face multiple emergency situations?

It is best that you aim for financial independence and gradually phase your retirement. That way, you can explore how stressed your passive cash flows are in meeting your complete lifestyle needs.

Do not cut all your discretionary spending today with a view to achieving early financial freedom. Remember, happiness in the present is just as important as enjoying early retirement sometime in the future.

The author is founder of Navera Consulting.

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Published on September 23, 2018
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