Want to retire early? Follow these 8 money rules of early retirement


Early retirement is the personal goal I hear of the most these days. Among the young who are in their 30s, working for another 30 years seems daunting. It is now established that one won’t work for the same employer all life; but not willing to work at all is relatively new. But quite fair I would think.

Work was not all consuming like it is for the youngsters these days. There are so many who routinely clock in 80-hour work weeks. Wait a minute, that amounts to working literally every waking hour. It is little wonder that they realise this cannot be sustained.

It is cruel that there are several professions from the high brow consulting and private equity, to professionally demanding medicine, that make long hours of work a norm. But even simpler professions like call centres, logistics management, selling and customer care have now begun to seek long hours. Then there are those that work across time zones in technology and software, music and composition, writing and content, media and filmmaking with scant regard for the clock and the list goes on. There seems to be no escape from long work days that many times spill into the weekend.

What young earners have realised is that complaining about work hours is futile when the job is interesting, peers are engaging and when the money is good. They, therefore, see their careers as front-ended with opportunity, money, growth and status. What their parents achieved in 35 long years of work, they realistically hope to achieve in 15 years. Early retirement then makes sense as not just the end of the slog, but as a well earned pivot that enables them to pursue what they wish. And seek the much elusive balance between work and life.

It is also important to see how stressful growing up itself has been for this generation brought up by helicopter parents. Forced into learning music, sports, accumulating social work hours, amidst perennially preparing for competitive exams and top scores, this generation has primed itself for slog, even as it desires to break off and follow the heart.

The second profession is a romance that many in their 30s carry in their heart. Many do not want to acquire assets, ‘settle’ into a marriage, or have children, before they are ready to focus on life as separate from work. In that utopia they would live in the quiet of the woods, sleep to the sound of the winds, eat food off their gardens and live a simple life. How does one prepare for such a transition?

First, building a corpus to fall back on is crucial. The corpus must be large enough to generate an income adequate to take care of the basics. There must be enough money to pay for rent, food, utilities and education and perhaps leave a small surplus for indulgences. This corpus must grow over the years, ideally at a rate that beats inflation.

Second, arriving at this corpus is not a function of just earnings, savings and investments. It is about what the new lifestyle would be. Is there a break from comforts, expenses, burdens, expectations of the present? Without a clear understanding of how different that would be, quitting a job can be risky. What earlier retirees saw as lifestyle compromise after retirement, the young are seeing as lifestyle rework.

Third, retirement needs to be about pursuing a different purpose in life. Else it would be boring, hedonistic and wasteful. Without making a choice about what it is one likes to pursue to meaningfully engage with the world, or the community one lives in, to contribute, to divert one’s energies into, early retirement can be harmful to mental and physical health. One cannot blame burning out as the excuse to do nothing for years.

Fourth, finding an alternative earning career is important. One could choose to write, teach math or music, become a farmer, work as a tourist guide, or devote oneself to a cause one feels strongly about. But all these pursuits must result in some income that can cover some expenses. That will reduce the stress on the corpus.

Fifth, one needs to be mentally prepared for the change one is romancing about. Living on a farm means getting comfortable with other life forms that will live with you; being willing to take what nature offers as heat, rains, and such unpredictable living conditions; being able to put up with lower levels of infrastructural comfort; being willing to cook each and every meal every day; and so on. There is enough to dishearten the weak in many of these alternative propositions.

Sixth, one must be willing to consider how these lifestyle changes will impact what one does for entertainment, social interaction, schooling, healthcare, and such everyday decisions that urban living allows one to take for granted. Many desire travel as their priority. Travel calls for good levels of physical fitness; willingness to put up with physical discomforts of travel; Comfort with new environments, languages and food; and so on.

Seventh, one should be open minded about calling off the experiment and returning to the mainstream if that is needed. Many like to take what they call a ‘break’ so they are able to experiment with an alternative and then make a choice. The early days of romanticising work from home and enjoying freshly cooked homefare with closed ones, has given way to frustration about being trapped indoors in these last 18 months. Novelty wears off faster than we imagine.

Eighth, retiring early and beginning a new life should not mean throwing away the fundamental principles of personal finance. One will still need wealth management and asset allocation; one will have to be adequately insured; one must monitor how the assets are performing; and one must actively ensure that the money is working hard even if one has retired to a more sedentary existence. The number of years one must fight inflation means the assets must grow in value—both from investment in growth avenues and regular accretion and accumulation of the corpus.

There is no harm in contemplating early retirement. But thinking through the elements of both financing it and sustaining it are quite underestimated it would seem.


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