Planning to retire at 45? Fast track your financial freedom with expert tips

Retiring early to be able to pursue one’s passions may not be an impossible dream. Wrapping up one’s professional life by 45 is possible if one plans early to build financial corpus through investments and savings. Here are some expert tips on developing an early retirement strategy.

How to get started?

"Starting early is critical so that your investments have more time to grow through the power of compound interest. Diversifying across different sectors and industries can help control risk while maximising potential returns. Staying informed about market trends, doing thorough research, and adapting to changing economic conditions can help you make informed investment decisions," said Ravi Singh, market expert.

"Regular deposits into your investment portfolio, using tax-advantaged accounts, and avoiding emotional reactions to market fluctuations are essential practices. By saving consistently, investing wisely and maintaining a long-term perspective, financial freedom by year 45 may be within reach for committed and well-prepared stock investors," Singh added.

Retire early with FIRE

"Dubbed the Financial Independence, Retire Early (FIRE) movement, this approach emphasises prudent financial practices that allow individuals to retire decades before the traditional age of 60," said Arpit Suri, CA and personal finance expert.
"A well-planned approach is essential before starting this journey. Central to this strategy is the careful cultivation of a substantial savings pool, up to 70 per cent of one's income, enabling the possibility of retiring in the 40s," he added.

Roadmap to retire at 45

Deliberate planning and aggressive saving

For those eyeing early retirement at 45, meticulous planning is the cornerstone. Starting in their 30s, individuals must strive to accumulate a savings fund equivalent to 30 times their annual expenditure. This fund will serve as the safety net for 30-35 years after retirement.

Beginning from the age of 30, individuals must endeavour to save nearly 70 per cent of their total earnings annually. This strategy facilitates saving more than double the yearly expenses, ensuring a comfortable buffer for inflation, contingencies, and uncertainties.

Inflation consideration and strategic investments

Accounting for inflation is crucial in financial planning. "As the value of money depreciates with time, being proactive is essential. For instance, an expense of Rs 10 lakh today could surge to Rs 16 lakh after a decade with a constant 5 per cent inflation rate," said Ravi Singh, Market Expert.

Experts also recommend allocating around 60 to 70 per cent of the retirement fund into equity, gradually shifting the balance to 30 per cent equity and 70 per cent bonds as retirement approaches.

Withdrawal strategy and realism

"Upon retiring, withdrawing a prudent 3 per cent of the portfolio annually ensures its longevity. This approach leaves the remaining balance invested, allowing the fund to continue growing, even exceeding inflation rates, over the decades," Singh added.

"Ensuring lifestyle alignment with savings patterns and crafting realistic expectations is key. Also, securing a robust medical insurance plan safeguards against unforeseen medical expenses that could jeopardise one's financial plans," Amit Gupta, MD, SAG Infotech said.