How Much Money is Required to Comfortably Retire at 42?

Retirement Corpus Meaning, Calculator, investment, formula & Excel Calculation

Most of the people are not happy with routine 9-5 jobs these days. Be it a single man or single woman, or a family person, regular jobs are not something they want to be engaged in till the age of retirement. It won’t be wrong to say that a significant percentage of the employees working in the private sector want to retire early so that they pursue their individual interests. But, they are confused about how to plan for early retirement. The biggest hurdle that comes in the way of early retirement planning is money. However, with a little planning and following a financial discipline, one can realise the dream of retiring early.

We are giving you a general yardstick and calculation rule in the below image which will let you know how much amount is required for a cushy life irrespective of the age of retirement. 

Wondering how to retire early? Lots of people would like an early escape from the rat race, whether it is to travel, pursue a passion project, start a business, volunteer, or just stop working.

However, retirement planning is tricky enough when you plan to work until your full retirement age. It is even more so if you want to stop working years—or even decades—sooner.

Can it be done? Absolutely. But unless you are independently wealthy—and few people are—it will take work and discipline.

Start Early

The first thing to do for building the desired corpus is to start as early as possible. Starting early works in your favour for many reasons – it gives you the flexibility to stomach risks by investing in high-risk high reward avenues that accelerate wealth creation.

If you start investing around the age of 24-25 for your retirement, by the time you are 35 and still not overburdened with other financial obligations, you would have accumulated quite a lot. Needless to say, the earlier you start the more you would be able to accumulate, the better are your chances of reaching your retirement corpus earlier.

Make the right investment

Since long term wealth creation is your objective, it makes sense to invest in investment instruments that offer you inflation-beating returns. Mutual funds in this aspect will definitely come to your aid.

Suppose you are 25 years of age now and want to retire by the time you are 40. In this case, your ideal portfolio will be a mix of equity and debt with more exposure to equity. So for the first few years say 10 years your portfolio can be 80% equity and 20% debt and as you near the retirement corpus or the retirement age, you can reverse the percentage to rebalance your portfolio. This will ensure your risk is minimized by the time you choose to redeem your funds after reaching the desired retirement corpus.

To begin with, choose a diversified equity portfolio ( 1 top-performing small-cap, mid-cap and multi-cap fund each) and expose about 20% of your portfolio to debt funds as well.

Liquid funds will not only stabilize your portfolio in times of market volatility but also build a corpus for short term requirements. Liquid funds can also act as an emergency fund that you can use during times of financial emergencies. This will make sure your long term goal is not compromised. It is a plus if you have already invested in long term investment schemes like PPF and FD and other tax saver schemes as these will aid you to reach your retirement corpus.

Automate your investments through SIP

Like any other goal, building your retirement fund requires dedicated effort. The best way to make sure you are diligently working towards this goal is to automate your investing via SIP. SIP will make sure you never forget to invest which may not be the case with lump sum investments as you would have to consciously remember. Investing in equity funds via SIP mode also frees you from the hassles of timing the market. Starting early via the SIP route will be light on your pocket; the compounding effect of small sums over a long period will help you beat inflation by a substantial margin.

Increase the investment amount with an increase in income

As your income increases, you can proportionally top up the amount towards your retirement fund. You can also utilize yearly bonuses and increments to boost investments towards your retirement to reach the goal faster.

Buy a Health Insurance with adequate cover

By health insurance with adequate cover to meet the rising costs of medical expenses. Get insurance as early as possible as the premiums get costlier with age. Good health insurance will ensure you don’t have to dip into your retirement corpus to fund medical contingencies.

Financial planners, as well as people who have retired early, suggest that even before you start planning your finances for your early retirement, you should have a post-retirement plan in place. “It is not a factor if you have the money or not. You may have all the money in the world, but what will you do after you retire? You need to have something to fill up your 24 hours. Reading the news, going for a walk and watching TV will consume only a few hours. You will still have a lot of time left every day," said Suresh Sadagopan, a Mumbai-based financial planner. What do you plan to do with it?

If you have decided to retire early, you will have to build a retirement kitty that will take care of your expenses post-retirement. Say you decide to retire at 40 years of age, you will still have at least 40-50 years of life. Hence, you will have to factor in the expenses for that period as well. The amount can go above ₹5 crores depending on your monthly expenses and inflation. However, when you break it down as part of your monthly savings, it may look more achievable.

Considering that retirement is a long term goal, a major part of your investment will be equity, since it gives you a step up to grow your wealth. However, it also means you are taking higher risks and will be exposed to the volatility in the market. You should not panic due to short-term volatility and rush to readjust your portfolio. You should rebalance your portfolio only if your financial portfolio requires it – for instance if you have to move money from debt to equity, closer towards to goal. You shouldn’t do it just because you see a drop in your investment amount due to the short-term impact on equity.

The retirement plan will also be contingent on the number of individuals depending on your income. For instance, if you have children, you will have to factor in the cost of their education while planning for early retirement. It is extremely important to factor in post-retirement expense for you and your dependents.

You may assume that the expenses will come down. However, if you have a certain passion you wish to pursue, you may not be able to cut expenses. However, make sure that you are able to maintain a lifestyle that is comfortable for you. You don’t want to get into a situation where you have to cut corners to make ends meet.

To be able to retire early you need to have a financial plan in place. You may seek the help of a financial planner to build an early retirement kitty. Also, besides money, you also need to put in place a post-retirement regime.

Estimate Your Retirement Expenses

If you want to retire early, the first step is to estimate how much money you will spend each month once you retire. Start by adding up expenses for things you cannot avoid, such as housing, food, clothing, utilities, transportation, insurance, and healthcare.

Ideally, you will enter retirement debt-free. That means no mortgage, no credit card balance, no outstanding medical bills, and no student loans or other debt. However, if you are still paying off any debts, be sure those payments are included in your budget.

Next, add in any discretionary expenses you will have, including those for entertainment, travel, and hobbies. Add everything together to ascertain how much you will need each month to maintain the retirement lifestyle you envision.

Of course, keep in mind that your budget will change as you reach different phases of retirement—you may decide to drop your life insurance policy, for example. This preliminary budget will be a good starting point, so it is worth taking the time to make it as accurate and realistic as possible.

Calculate How Much You Need to Retire

Now that you have an estimate for your monthly spending, the next step is to calculate how much money you need to save. There are several ways to estimate this. One approach is to have between 25 and 30 times your expected yearly expenses plus the cash to cover one year's worth of expenses.

Start with your monthly expenses and multiply by 12 to obtain an annual estimate. Next, find your "target" range. 

Adjust Your Current Budget

Here's where the discipline comes in. You will have to work hard to make up that shortfall—particularly if you want to do it quickly. Many people who want to retire early live on 50% (or less) of their income. The remainder is used to pay down debt and invest in that nest egg.

You have three options here: Spend less, Earn more or, Do both

It is essential that you create a budget so you know where your money goes—and where you can cut back. There are lots of budgeting apps that can make this tedious process a little easier.

Max out Your Retirement Accounts

Regardless of when you plan to retire, it's wise to start early and save frequently. Retirement accounts like NPS is a great way to do this.

While you are still working, do everything you can to max out your retirement accounts. A traditional NPS allows you to contribute to your retirement, the earnings grow tax-free, and you get a tax deduction in the tax year you make a contribution. However, when the money is withdrawn in retirement, it's taxed at your income tax rate in the year of the withdrawal.

Work with a Financial Advisor

If you want to retire early, you have two big challenges: First- you have less time to save for retirement. And Second - you have more time to spend in retirement.

Unless you're a rock star investor, it's a good idea to work regularly with a financial advisor. An advisor can help you develop an investment strategy to make it easier to reach your retirement goals. They can also show you exactly how much you need to invest each month to reach your goal within a certain number of years.

Once you retire, your advisor can help you manage your income streams to make sure the money lasts. Income streams might include income from dividends, required minimum distributions, Social Security, defined-benefit plans, and real estate investments.

Take the time to find an advisor you are compatible with—you could end up working with them for decades, after all. If you are concerned about the cost of a financial advisor, remember that you are not just paying for their time; you are paying for their expertise. If you find the right advisor, that expertise will more than make up for the expense.

The Bottom Line

Many people would like to retire early, but few have the financial resources, planning skills, and discipline to do so. To get started, estimate your retirement expenses, determine your target nest egg, and then save and invest to make it happen.

Post-retirement, you can always use our Best Bank Nifty option tips or Intraday trading tips to start additional money on a daily basis.