Want to Retire at 45? Here are 7 Steps to Make it Happen

Dreaming of long vacations, relaxed mornings, and doing all those things you always wanted to do? Early retirement might sound like a distant dream, but guess what? It’s closer than you think. There’s no magic involved. All it takes is smart planning, disciplined savings, investments, and healthy living. 

Can India Bridge the Retirement Investment Gap?

The retirement-age population in India is expected to rise by 41% by 2031; however, only 32% have opted for retirement-catered solutions. According to a study by ICICI Prudential Life Insurance study titled ‘Is India prepared for retirement: 

• 65% want annuity products, but only 11% actively saving.
• Maintaining a current lifestyle in retirement is a top priority for 83%.
• Bright spot: A new generation starts planning early at 40, saving 17% of income.
• Retirement goals include travel, staying connected, and financial security.

What does retiring early mean?

It doesn’t mean you stop working. It means your savings have reached such a stage that you can live through the returns you generate. That is true financial independence. It means your investments generate enough returns to live your life and meet your wants and needs, so you do not have to work for money. 

1. Figure Out Your Retirement Number

Before diving into investment strategies, figure out the amount you need to live comfortably post-retirement. Consider your current expenses, inflation, healthcare costs, and desired lifestyle. A simple rule of thumb suggests 70-80% of your pre-retirement income.

If you plan to retire at 45 and are currently 30, you have 15 years to build up a fund that will cover your living expenses for 30-35 years after your early retirement. To make this possible, you’ll need to save an amount that is 30 times your annual expenditure. The question is, how can you achieve this?

Once you reach 30, you should aim to save almost 70 percent of your total earnings every year. It means you must save more than twice the amount you spend annually. By following this approach, you can save for two years with every passing year while keeping a 10 percent margin for inflation, contingencies, and other uncertainties.

So, if your annual expense is ₹10 lakh. Then you must be earning ₹32 lakh (after tax) so that you can 70 percent of it to be able to save ₹22 lakh, which is nearly 10 percent more than the two-year expenses:

(10X2) + (10% X 20) = 20 + 2 = ₹22 lakh.

The remaining 30 percent of 32 lakh is ₹9.6 lakh or nearly ₹10 lakh — which you can spend.

If you maintain the current saving rate over the next 15 years, you can create a portfolio that will last more than double the number of years you saved, which is 30 years. As you progress in your career, your income will likely increase, and you can save faster than before. This additional income can be used to cover unexpected expenses.

Retirement at 45 may sound a little surprising, but it is possible to do so. Remember, it is a slow process that can’t be achieved overnight. It needs planning. 

2. Start Saving Early, Watch it Grow

The earlier you start, the easier it gets. Compound interest works wonders over time. Save at least 15-20% of your income monthly. Diversify your savings across multiple instruments like PPF, EPF, NPS, mutual funds, and stocks. Utilize platforms like SIPs (Systematic Investment Plans) for disciplined investing. You can also use our SIP calculator for more details.

Now, saving Rs. 10,000 per month through SIPs in diversified equity funds with an 8% average return could potentially reach Rs. 2.4 crore in 30 years. If you intend to live a retired life for 30 years, saving 70% of your income for at least 15 years is recommended. This will ensure you have sufficient funds to cover your expenses in the long run. The remaining 30% of your income can cover your current expenses. Remember, this is just an estimate, and actual returns may vary.

3. Debt Free = Stress Free

High-interest loans can eat up your retirement savings. So, focus on clearing debts before putting too much into investments. Try to explore ways to combine loans or get lower interest rates. Remember, a stress-free mind is vital to a happy retirement.

4. Add To Your Skills and Look for a Side Income

Multiple income sources are like a safety net and can boost your retirement savings. Explore your skills and find a side business you enjoy – freelancing, online businesses, consulting, or even teaching. Every bit adds up and provides financial security. Remember, a side hustle is not your chief source of income.

5. Create a Realistic Budget and Stick to it

Track where your money goes, spot extra expenses, and cut back on unnecessary, fancy stuff. Every rupee saved today brings you closer to your retirement goals. Remember, a budget can help you reach your goals faster.

6. Seek Professional Guidance

A qualified financial advisor can help you build a personalized retirement plan based on your risk appetite and goals. Their expertise can save you time and money in the long run.

7. Don’t Forget Healthcare

Healthcare costs in India are rising faster than inflation. Studies show they’ve increased by around 15% annually in recent years. That means a treatment costing Rs. 10,000 today could cost Rs. 26,533 in just 10 years! According to a Max Bupa Health Insurance survey, 75% of senior citizens in India spend over Rs. 15,000 annually on Healthcare. Remember, investing in a good health insurance plan early on is a wise thing to do. 

Think of retirement planning as a lifelong journey. Stay healthy and active—it’s good for you and saves money on Healthcare later. Enjoy the process, adjust plans as needed, and get advice from financial experts. That way, you can retire confidently and enjoy the freedom it brings.

After creating a substantial fortune in 15 years, you can start withdrawing 3 percent of it each year, while the remaining portion of the fund can be kept invested. It will allow the fund to grow exponentially over the next 30 years, ensuring that the fund never runs out of money during its lifetime.