How to plan for early retirement

Srikala Bhashyam One of the fall-outs of the economic boom is that salaried class is ageing early in life. Ask a 40-year old professional about his retirement age and his answer would be tomorrow.

Of course, most of them would like to retire financially without the troubles of ensuring cash flow on a monthly basis through salary. While retiring at 40 would mean a retired life of another 40 years, it hasn't dithered many from dreaming about retirement life.

What a contrast to the older generation, which wanted to go on and on and has even managed to push the retirement age upwards. In fact, many of us would recollect as to how our parents hated the last day of their job even after putting in three decades of service in a single company!

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If you are one of those nourishing the dream of retiring in the foreseeable future, you need to take into account a number of issues. Here are must dos before you wish to hang your boots:

Debt free: Make sure to keep your loan book clean as a retired individual cannot afford to worry about loan repayments. Since retirement corpus would be limited, it is not a smart idea to use it for high cost liability repayment.
Have enough medical insurance: In an era where medical expenses are on the rise, medical insurance plays a crucial role in financial planning. Hence, make sure to have sufficient cover through medical insurance for your family.
Regular cash flow: Any thoughts of retirement should be entertained only after ensuring regular cash flow. This could be in the form of a fixed return product. The instrument chosen for such regular returns needs to be less risky as after retirement, ability to increase the corpus would be limited.

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Diversification through different assets: One of the best ways of managing risk is through asset diversification and it holds greater importance after the stoppage of income. Different instruments carry different risk profiles at different points of time and spread the risk through a basket of products.
Pension plans: For regular and sustainable cash flow, sign up for a pension plan as this ensures cash flow without the hassles of management. Those who didn't plan for a pension plan early in life can do so even with an immediate annuity product provided the required corpus is in place.

Remember the lessons learnt from the gloom
Look out for tax efficiency: None of us like the idea of shelling out taxes and after retirement, the thought of paying taxes turns even more painful. So, the instrument you choose needs to be tax efficient, which means allocation of money for generating income, should be judicious. Though the tax structure is not a fixed phenomenon, one also needs to be aware of various options.
Plan your retirement: Finally, retirement, in itself, needs to be a planned exercise and needs careful planning of many years. Those who want to opt for pre-mature retirement need a few years of thorough financial planning. Any early retirement done in haste may not allow you to retire financially and instead, might push you to take up unsatisfactory career.

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Srikala Bhashyam is the Managing Partner of RS Consultants. She runs an investment-consulting firm in Bangalore to provide consultancy in the areas of financial planning and media. In the last 15 years, she has worked with top publications in different locations. The primary focus of all her columns is to simplify the nuisances of Finance, which has attained a new look over the years. Besides being a columnist, Srikala has also been closely associated with some of the prestigious book projects.

The author can be reached at srikala.bhashyam@gmail.com

The views expressed in the article are the author's and not of Sify.com.