Can You Afford to Retire at 60? Forget Early Retirement.

Do you remember the classic dialogue about retirement from the movie, Zindagi Na Milegi Dobara?

When Katrina Kaif says to Hrithik Roshan:

“Kabhi pay check milte waqt, tumhare aankhon mein aasun aye hain?”

“Jab itna kuch achieve kiya hai, toh kya khush ho?
Agar aaj bhi kisi cheez ki kami mehsoos hoti hai, toh woh kya hai?
Un cheezon ke liye waqt nikalo, jinse sach-much tumhe khushi milti hai like cooking.”

And Hrithik replies, “Yeah, that’s the plan, I mean, 40 ke baad I retire and ……”

Katrina interrupt Hrithik and says, “Dude, tumhe kaise pata hai ki tum 40 tak zinda rahoge?”

“Seize the day my friend.
Pehle is din ko poori tarah jiyo,
phir 40 ke baare mein sochna.”

Sounds interesting?

“40 tak note chhapo, aur phir retirement (work till age 40, save money and then retire).”

Hrithik is talking here about retiring early and pursue his hobbies like cooking, once he retires from his high pressure work, around his age 40.

But then Katrina comes in his life with her point of view that his plan will work only if he knew how long he is going to live. What if he doesn’t live till 40?

Both seems to have a valid point of view.

One school of thought says, if you will worry too much about the future, you will miss the present.

And a different school of thought says, there’s no present. There’s only future and past. By the time I am writing this, the present moment has already become past.

Our every action is driven by some or other result in the future. We send our children to schools hoping that someday they will get good jobs in the future. You need to keep an eye on the future all the time, while you enjoy your present.

I think the biggest challenge is that we don’t know how long we are going to live.

Just imagine, if time and money wouldn’t have been any issue, how would your life be like? You are financially free. May be you would want to explore the world or may be you just want to do nothing, I don’t know. May be you wanted to do something which you couldn’t do earlier. The list is endless.

I know that’s easier said than done.

I, myself, gets very excited just thinking about this. What about you?

But can you really afford to retire at 60 or 58 or 62 or for that matter any age, forget early retirement?

Let’s find out.

Retire Early

Walking and running are the simplest of exercises which are available for free to keep you active and healthy. But if you look around, you may easily find some people who are not able to even walk properly in their later years as they age, forget about running.

Sadly, it holds true when it comes to retirement income as well.

Most of the retirement studies suggest that most people will not be able to maintain their standard of living after they retire from work at around age 60 years. Forget about early retirement.

I will address this in detail, later in this F.I.R.E. series. But let’s talk about F.I.R.E. first.

F.I.R.E. (Financial Independence, Retire Early)

F.I.R.E. is an acronym which stands for Financial Independence Retire Early. It can be split into two independent words, financial independence and retire early.

Financial independence is the 1^st step towards F.I.R.E. It’s not easy by any means for most of the people.

You may think of retirement or early retirement or no retirement once you have achieved financial independence for life.

Now let’s move to financial independence.

Financial Independence

One of the surveys during recent corona times revealed that unemployment and reduced income were top concerns among the workforce.

On one hand, most of the people don’t like their jobs and on the other hand people fear loss of job or reduction in income. This is strange phenomenon. Isn’t it?

This is just because most of the people are not financially independent. They can’t afford not to work for long. Because if they don’t work, how would they run their house? How would they pay their bills? How would they pay for their home loan and auto loan EMI’s?

So financial independence or financial freedom as some people call it, may be defined as, a stage in your life when you can survive and maintain your current lifestyle without having any active income.

You don’t need to do any work, for the rest of your life, to run your house.

It simply means that your passive income from all sources is sufficient enough to take care of your expenses as long as you live.

The source of passive income could be interest from debt investments like fixed deposits, rent from real estate units, dividend from stocks/mutual funds, profit from stocks/mutual funds, pension from government, royalty income etc.

But you may choose to work for a lot of reasons other than money. It’s your choice.

Robert T. Kiyosaki, author of bestselling book Rich Dad Poor Dad has a very interesting take on financial independence. He describes wealth as:

The number of days you can survive without working and still maintain your standard of living.

Wealth is measured in time, not rupees.

Let’s understand this through an example.

Suppose you have Rs 12 lakhs worth of liquid assets like bank fixed deposits which you can use anytime. If your monthly expenditure is Rs 1 lakh then your wealth is approximately 12 months or 365 days.

In this case, you are just 12 months away from being broke. You can’t afford not to work for more than a year, if you live independently. If you live with your parents, then the situation may be bit different.

It’s common sense and plain, simple mathematics.

Isn’t it?

Temporary Break

There may be some situations where you are out of your job or work due to a variety of reasons that may include:

• Fired from job
• Higher studies for yourself
• Maternity break
• Job change
• Career change
• Travel break
• Prolonged Illness
• Short/long break from job due to boredom
• Starting a new business
• Business failure
• Taking care of family members

In all the above scenarios you need to survive without any active income. Not income actually, but some liquid money, right?

Let’s understand this through an example.

Let’s assume there is a rental property worth Rs 1 crore, which gives you monthly rent of Rs 25,000.

Now assume that your monthly expenditure is Rs 1 lakh and you are out of your job and without any income for a year.

Now what would you need to do to survive for the next 1 year?

Would you go and buy 4 such rental units for Rs 4 crore so that you may start getting Rs 1 lakh every month and your problem is over?

No, you don’t need to do that. Even if you want to do that, where is the money, honey?                     

But don’t worry, the solution is very simple.

As mentioned earlier, since this is a temporary situation, you just need to take care of your expenses for a year.

And hence you just need to have Rs 12 lakh in the form of liquid assets like bank fixed deposits which you can use anytime you want to. This will solve your problem for now and you will be up again running the rat-race.

The good thing is that the above situations are temporary. You may have to struggle for a very short period of time. It’s similar to running a 100 meter race which can be done on the spot by most of the people, without any preparation. It’s not that difficult.

But the biggest challenge lies ahead when you actually retire from work permanently. It’s similar to running a full marathon of 42.2 km, which can’t be done by most of the people. You need to prepare for that and it’s not easy.

My Story

Let me briefly share with you my story.

I was working in a state government organization when we started financial products distribution business in the year 2007. After working for 12 long years in the government job, I resigned from the job in the year 2013 and started working full time in the business thereafter.

Fortunately, we had some liquid assets in the form of equity mutual funds, when I resigned from the job. The amount was enough for survival for 5 years without my job. That means I could focus on our business rather than worrying about how our house would run.

As explained above, our situation was a temporary one, as we were switching from job to business.

That liquidity, along with many other factors, made the decision to quit the government job a lot easier for us.

So liquidity played a very crucial role in our lives and it can play a similar role in your life too.

Permanent Break

And then there is a permanent break from the job when you have to financially survive till your life, without being dependent on anyone else including your children.

Yes, you guessed it right, it’s Retirement time.

If you wish to survive without doing any work or without any active income for life, the situation becomes very complex. A lot of factors come into play which I will discus in detail, later in this F.I.R.E. series.

Now actually you need to have Rs 4 crore in your retirement kitty as of today, to buy those rental units which I mentioned earlier.

These rental units can give you a monthly rental of Rs 1 lakh, in case you wish to achieve your financial independence through real estate. That’s a lot of money, right?

You need to plan for that. This won’t happen automatically.

Why people fail to plan for retirement years?

It seems that retirement is not a top priority for most of the people due to plenty of reasons.

• One of the prime reasons may be that there seems no urgency. Other financial goals come first and seem more important and urgent than retirement. And by the time people realize this it gets too late.
• Some people can’t imagine that someday they will not have any active income. They believe that they will continue to work till their life and hence they don’t need to accumulate money for retirement years.
• They don’t realize that someday they might not want to work for their whole life for a bunch of reasons outside of their control including bad health.
• Some people say that they will not live that much longer; I look straight into their eyes and ask them, what if they do?
• Dying too early is a big risk, living too long is an even bigger risk. People don’t understand this.
• Life can be very short or very long, we don’t know. There is no mechanism with the help of which we may ascertain how long we are going to live.
• Some people have started talking about building retirement kitty but don’t know exactly what to do after that.

Buying a home is relatively easy. Funding for education for your children is also relatively easy. Loan is available for almost each & every financial goal except for retirement income.

But generating retirement income is the most difficult & most complex task to accomplish, if left unplanned. The good news is that it can be made possible with the right approach, though it’s not easy.

Summary:

In nutshell, F.I.R.E. is simply about retiring earlier than the traditional retirement age. You might choose to retire at 40 or 50 or even earlier than that if you have become financially independent. Or maybe you don’t want to retire at all but certainly you may want to achieve financial independence at an early age.

So don’t retire at 60 when you are old; retire when you want to and you can afford it.

As with everything in life, there are some good and bad things about retiring early as well.

I will address that and other important points in detail, later in this F.I.R.E. series.

To be continued…

Happy Reading!