How to retire in your 40s: 10 steps guide

18 January 2022
How to retire in your 40s: 10 steps guide

“Retirement” is one such term, which brings mixed feelings inside the heart of a human. India thrives on having a predominant mindset of retiring at 58-62. Although there may be technically nothing wrong with retiring at that age, it seriously puts a question of how limited time can we enjoy the One Life we have got to spend. But in the USA, a whole movement has been going on to retire early. Many individuals have tried and succeeded to reach this goal of retiring in their 40s. So, is it really possible to retire in your 40s in India? Let us find out.

In the USA this movement (of retiring in the 40s) started very focused and was called FIRE- Financial Independence & Retire Early Movement. The individuals are very interested to retire rich and retiring early.

Without Financial Independence, early retirement is impossible. Financial Independence is based on the fact that instead of you working for money, money should be working for you.

10 steps of the FIRE movement

1. Use the 40-50-10 rule: 40% of your income should go for your needs, 50% should go to your savings, and the remaining 10% remains for your wants & luxuries.

2. Avoid debt as much as possible: Use credit cards, but set its limit to 40-50% of your income, so that you don’t spend more.

3. Reduce your expenditure: Instead of using the Old school formula of Income-Expenditure=Savings, FIRE Movement gives us a new formula; Income-Savings=Expenditure.

4. Make multiple sources of income: When you have multiple cash inflows coming in, the wealth accumulation part becomes very easy.

5. Plan your career early: If you start planning early, chances of getting success and reaching your goal become much easier.

6. Start early investments: Only 3% of the Indian population invest in Equity Markets today. Believe it or not, Stock markets give such returns which Indian banks cannot give in their dreams. In your 20s and 30s, you can take higher risks which can’t be possible when you grow older.

7. Get insurance for you and your family: Don’t take emergencies lightly. If you are not insured, all your savings can wipe off if there is one single medical emergency.

8. Create your backup plan: If this plan doesn’t work, then have a plan B to reach your goal.

9. Put your  surplus cash in savings or investments: To retire early FIRE movement clearly states that you have to be a frugal saver and investor.

10. Calculate retirement fund: Wonder how much money would you really require in retirement? Under FIRE Movement, there is a specified formula for this:

Total Annual Expenses * 25 = Retirement Corpus

For example, if your annual expenses stand at Rs. 20 lakh then you would require approximately Rs. 20 lakh X 25 = Rs 5 Crore as your retirement fund corpus.