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Dear Qualified Financial Advisor,

I’m in my mid-40s and have dedicated most of my adult life to achieving professional ambitions. I’ve recently started exploring the possibility of retiring early because I’m keen to pursue some personal projects and explore other interests while I still can. But I doubt I will be able to sustain the lifestyle that my family and I are accustomed to, post-retirement — especially because I’m still working towards getting my finances on track. Can I still hope to retire early, or do I need to sacrifice that goal to work towards financial stability? I’m not sure which to prioritise and if I would be putting the cart before the horse if I choose to retire early. I could do with some help.

A Weary Workhorse

Dear Weary Workhorse,

First of all, it’s fantastic that you’re motivated to work towards your objective, whether it’s financial freedom or early retirement. Let’s try to make the distinction clear.

Retirement is the decision or requirement to end formal employment undertaken for remuneration. Financial freedom is the ability to meet your future expenses — both needs and aspirations — without depending on anyone, and this concept presupposes that your primary responsibilities have already been successfully met.

Early retirement and financial freedom have many aspects in common. It can be disastrous to decide to retire before achieving financial freedom, but you’re right, the quest for financial freedom cannot last forever. Dreams must be realised while you still have the time and the energy to work for them. So, the question is, what comes first?

The reality is that preparing for retirement and achieving financial freedom require a long-drawn, clearly defined, goal-based financial plan that is based on discipline, balanced lifestyle choices, and caution. To create a sound financial plan, we must first recognise and then overcome our fears and insecurities. Without that, you can find yourself pursuing an impossible dream.

The next stage would be to decide how much you require for your retirement plan or to be financially free. Comparisons with friends or neighbours are useless because what is ‘enough’ varies from person to person. Because life must be lived alongside, this journey may take years or even decades. The satisfaction that comes from enjoying material comforts, having a good job, raising a family, taking vacations, having your desired car, and engaging in hobbies and meaningful entertainment can be necessary for a fulfilling life.

Making an early investment in your skill set can enable you to grow your income and plan better for retirement. It also aids in cultivating a sincere sense of thankfulness for what you have. You may also wish to consult an evolved financial advisor — one who will propel your inner journey as much as your outer one. 

Thereafter, as you get into the technicalities of financial planning, you must make an honest assessment of your needs — for instance, the cost of maintaining your household and staying healthy, and making or refraining from certain discretionary lifestyle choices. Consider things carefully, weigh your options, challenge your assumptions, and maintain safety margins.

Once you are convinced, stick to the chosen plan. Take your short-, medium-, and long-term goals into consideration when making plans. In the short term, you should establish an emergency fund that ideally covers about five times your monthly expenses, purchase adequate term and health insurance, and have regular health check-ups. If you live in a metro city, ensure that your insurance covers the higher medical expenses prevalent in urban areas. Periodically review your financial goals because of the changing environment concerning taxation rules, inflation, etc. Additionally, make investments in less volatile asset classes that provide fixed income and are more liquid and flexible. Consider short-term bank fixed deposits, specific debt mutual funds, or even peer-to-peer (P2P) lending platforms.

In the medium term, plan for goals like home ownership or paying for your child’s higher education. If postponed, this could affect your financial freedom. One should invest in assets like hybrid mutual fund schemes, gold funds or gold exchange-traded funds ( ETFs).

Keep in mind that achieving financial security and planning for retirement is a journey. Therefore, in the long run, make sure you have passive income sources. Renting out a home of your own won’t be sufficient for this; instead, you should look at diversified equity, mutual funds, portfolio management services (PMS), and some low-cost, customised unit-linked life insurance (ULIP) plans.

A financial plan alone cannot make a post-retirement life fulfilling. Fulfilment also comes from staying healthy and doing something meaningful with your time. Early retirement is not an end in itself, but a means to the end of pursuing happiness or finding a sense of purpose. Whatever it is that you want to do post retirement, it is important to start probing early and be clear about your life goals, as resources at that stage will be limited and too many hits and trials can be draining.

The verdict on what to strive for between financial freedom or early retirement is consequently not clear, because a one-sided answer won’t be an honest response. Just as a bicycle needs two wheels to run, early retirement without a sound financial plan is just wishful thinking, and a financial plan alone cannot make early retirement fruitful.

Vinay Singh

By Vinay Singh

Founder & Coach, Right Value Services

Vinay Kumar Singh has an MBA in Finance and NISM XA XB certified and over a decade of experience in providing financial advice.

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