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The good news is that this headline is not misleading. The bad news? It's not easy to achieve. (But let's be honest: when is anything worthwhile ever easy?) So, let's dive into the numbers without further ado.
You can retire in 15 years and live off your wealth in perpetuity if you can:
a) Invest exactly half your salary in
equity mutual funds
starting today.
b) Increase your investment by 5 per cent annually.
c) Reduce your monthly expenses by 10 per cent in retirement.
(We're assuming that your equity mutual funds will grow at 12 per cent annually, your yearly expenses will rise by 6 per cent due to inflation, and you'll shift to a 50:50 equity-debt plan yielding 9.5 per cent during retirement.)
This plan is not just for the richie-rich either. Here's a practical example:
| Age: 25 |
| Monthly income: Rs 50,000 |
| Investment: Rs 25,000 (50 per cent of your income) in equity funds each month |
| Annual increase: 5 per cent increase in monthly investment |
| Expense adjustment: 10 per cent reduction in inflation-adjusted expenses during retirement |
| Outcome: You could retire by age 40 |
| And if you save Rs 30,000 per month (60 per cent of your salary) and follow the same steps, you could retire by 36! |
Retire early dreams
While the dream of early retirement is achievable, it requires discipline and frugality. If you save less than 50 per cent of your income, it will take you a few more years to retire (see the below table).
Ultimately, it comes down to how much of your salary you're investing each month. For example, investing 20 per cent of your monthly salary would take someone 29 to 35 years to retire with peace of mind.
In short, it's a classic case of 'no pain, no gain'.
When can you retire?
The number of years it will take for you to retire
| Investment rate (% of salary) | If your post-retirement expense reduces by 20%* | If your post-retirement expense reduces by 10%* | If your post-retirement expense stays the same* | If your post-retirement expense increases by 10%* | If your post-retirement expense increases by 20%* | If your post-retirement expense increases by 30%* |
|---|---|---|---|---|---|---|
| 20% | 29 | 30 | 32 | 33 | 34 | 35 |
| 30% | 22 | 24 | 25 | 26 | 27 | 28 |
| 40% | 17 | 19 | 20 | 21 | 22 | 23 |
| 50% | 13 | 15 | 16 | 17 | 17 | 18 |
| 60% | 10 | 11 | 12 | 13 | 13 | 14 |
| 70% | 7 | 8 | 9 | 9 | 10 | 11 |
| *Adjusted for inflation | ||||||
Also read: How to achieve FIRE through SIPs
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