No matter how much you love your job, a small part of you is looking forward to retirement. And if you are not a workaholic, early retirement may be a pipe dream that you often engage in — except that it does not have to remain a dream any more. With the right financial strategy, you can achieve your goal of retiring early.
The F.I.R.E method is one such early retirement plan that aspiring people worldwide rely on.
F.I.R.E is an acronym for Financial Independence, Retire Early.
It is a financial strategy with early retirement as the ultimate goal. The strategy prioritises some essential aspects such as the following:
This early retirement plan prioritises savings. Ideally, if you are adopting the F.I.R.E strategy, you should aim to save around 50% to 70% of your income. This can also be higher if you can afford it.
It is important to adopt a frugal lifestyle to maximise savings, where you only prioritise essential expenses and your savings above discretionary spending. This will help you save as much as possible.
The money saved using the two above-mentioned strategies must be invested strategically to not only preserve capital, but also to achieve capital appreciation and wealth creation before the target retirement age.
If you are eager to achieve the goal of early retirement in India, here are some pointers that can help you get started with the F.I.R.E method:
The F.I.R.E method was made for Western financial culture. To retire early in India, adjust the blueprint to fit the Indian context. One way is to use a higher F.I.R.E multiple. Instead of aiming for a fund 25 times your annual expenses, use a multiple like 30. For example, if you spend Rs. 5 lakhs per year, aim for a retirement corpus of at least Rs. 1.5 crores.
While regular investments like fixed deposits can help with capital preservation, they do not do much for capital appreciation, which is a crucial element of early retirement in India. To achieve this goal, you need to focus on long-term wealth creation by diversifying your portfolio across market-linked investments like direct equity and mutual funds.
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The F.I.R.E method is a strategy for early retirement. It involves practices like aggressive saving, frugal living and strategic investments that help build a sizable retirement corpus within a short period.
Implementing the F.I.R.E method is possible if you create a strict budget that prioritises maximised savings, stick to the said budget and aggressively invest with the aim of wealth generation.
The key principles of the F.I.R.E method include a high rate of savings, frugal living and strategic investments for regular income generation and wealth creation. It is different from traditional retirement planning because it prioritises early retirement.
There are no prerequisites for using the F.I.R.E method. The success of this early retirement plan, however, depends on your income levels, your financial discipline and your strategic planning.
The benefits of the F.I.R.E method include financial freedom, reduced stress and early retirement. The challenges typically involved are adherence to the budget, limiting expenses and adopting financial discipline.