FIRE Retirement, primarily an acronym for ‘Financial Independence Retire Early’ has become increasingly popular in India. The reason it’s gaining popularity is not that people want to leave their nine-to-five jobs and follow their passion. Okay, it may be the case for 1% of people. But rest of the people are considering FIRE because they’re unable to deal with the stress in their corporate jobs.
3 Months back, I was having a conversation with one of my friends who holds a good position in an Insurance company. He was extremely frustrated and wanted to take an early retirement. I asked him whether he was frustrated with the work pressure. “No, I am not frustrated due to work . I can easily handle the stress too.”, he replied. He further added that he had been taking this stress for many years but now the situation has worsened. The stress is now accompanied by fear of losing his job which was previously not there.
(Now, the fear of losing job has increased tremendously due to corona virus crisis)
Earlier, limited targets were given and upon its achievement, there was not much of a pressure. But now there is no limit on targets. On top of it, there’re many employees who have been asked to leave just because they couldn’t achieve their targets. Though the employees didn’t achieve their targets, they were performing well but still, they were asked to leave. Even after achieving the targets, we are being forced to get more business for the company. I honestly don’t know where the private sector is going, concluded my friend.
As of now, the story may not be applicable to all the sectors. But the future is definitely going to be like this for most industries, except for government jobs, I believe.
Fire retirement which currently stands for ‘‘Financial Independence Retire Early’ might change to ‘Forced Independence Relieved Early’. Then the people will not have any option but to leave their jobs – with or without money.
In my opinion, even if you’re planning to retire at 60, start investing for retirement either at 45 or 50. If you somehow sail through your corporate job beyond 45-50, the additional amount could be used for wealth accumulation. This is just my point of view, you can have your own independent opinion.
Also Read: Asset allocation for retirement
Fire Retirement in India
Now coming back to fire retirement in India, there can be 2 feasible options for fire retirement:
- You stop working and use the retirement corpus for your remaining life.
- You are able to manage the monthly household expenses; the retirement corpus keeps growing while your monthly expenses are managed.
The first point is self-explanatory and hence, there is no need to explain it. Speaking of the second point, fire retirement as semi-retirement and actual retirement may be 10-15 years away. In fact, there can be various scenarios where fire retirement can be semi-retirement but not the actual retirement.
- You are having a passive source of income. It could be that you are following your passion and have started earning from that. There’s another possibility that you’ve got a more relaxed job and you’re managing your monthly expenses from this income source.
- Your spouse is also working and will continue doing so for the next 10-15 years. The monthly expenses can be managed with his/her salary.
Also Read: Sample Financial Plan for Family
Also Read: Financial Advisor Fee in India
Option 1 – Actual retirement
Let me start with an example
Ajay is a 30-year old man who wants to retire by the age of 45. Besides being married, he is sole earner in his family. His monthly expenses are 30,000 and he wants to maintain the same standard of living even after retirement. In simple words, he requires 30,000 as per today`s cost trends to happily live his retired life. His wife is 3 years younger than him and they expect to live till age 85.
In this scenario, Ajay needs to create a corpus for the remaining 43 years of his retired life. The life expectancy is 85 years, retirement age is 45 and his wife is 3 years younger, so 43 years.
Assuming 6% inflation, the value of 30,000 after 15 years (at Ajay’s retirement) would be 72,000 per month. This amount of 72,000 (inflation adjusted) is required for the next 43 years.
So, the corpus required to generate this monthly income of 72,000 would be around 2.9 Crores.
How much would Ajay have to invest to achieve this corpus in 15 years? – It would be around 80,000 per month assuming returns of 9% on the investments. I have assumed 9% returns because Ajay cannot invest the entire amount in equities since there’s not much time left.
So, for an actual fire retirement, Ajay must invest 80,000 monthly so he won’t have to work in the future.
Option 2 – Semi-Retirement and Actual Retirement
As you can see, there’s a case in the above scenario where Ajay`s wife is working. If she can manage the monthly expenses from age 45-60 (assuming 60 as the actual retirement age), the question is-
What would be the corpus and investment required?
Assuming 6% inflation, the value of 30,000 after 30 years (at Ajay’s retirement) would be 1.7 Lakhs per month. This amount of 1.7 Lakhs (inflation adjusted) is required for the next 28 years.
So, the corpus required to generate this monthly income of 1.7 Lakhs would be around 5 Crores.
Let us do some calculations here:
Ajay can only invest till age 45 i.e. 15 years.
Corpus required at age 60 – 5 Crores
The amount required to achieve corpus of 5 Crores at age 45 (assuming CAGR of 10%) – 1.2 Crores
So, Ajay will require a corpus of 1.2 Crores at age 45. I have assumed 10% returns here as the investments here would have more time to grow.
How much would Ajay need to invest to achieve this corpus in 15 years – It would be around 30,000 per month
There’d be a difference of 50,000 if you opt for semi-retirement.
I haven’t considered any other goals for which you may be required to make more investments. Also, you may have to invest less if you already have some corpus ready. Nonetheless, investment and corpus will vary from person to person.
Fire Retirement Calculator
Here is the link of Fire Retirement calculator in India which considers both the scenarios mentioned above.
It’s very important to explore the idea and start preparing for FIRE retirement in India. You never know when you may be kicked out of your job. Even if you cannot plan for a full-retirement due to lack of adequate funds, start preparing for semi-retirement.
Most importantly, it would be very difficult to stay at home if you’re planning for a complete retirement at 45. You may enjoy it for a few months but then you’d realize that it wasn’t worth the effort without any work. So, start developing a passion, a business, a source of income which will keep you busy and happy.
Till Then, Happy Investing!