Avoid These Mistakes if You Are Planning for Early Retirement - Highlights

Metadata

• Author: M. Pattabiraman
• Full Title: Avoid These Mistakes if You Are Planning for Early Retirement
• URL: https://freefincal.com/avoid-these-mistakes-if-you-are-planning-for-early-retirement/

Highlights

• Do not assume you will be frugal in future! You have no control over your expenses! (View Highlight)
• You must assume your expenses after retirement will increase each year by at least 6% – 8% would be much better! (View Highlight)
• Expect lower returns from equity and fixed income than what we get today. Your retired life could span 2-4 decades. Over this time, returns are expected to fall. See: Ten-year Nifty SIP returns have reduced by almost 50% (View Highlight)
• Review your retirement plan (inputs and assumptions) each year before and after retirement. (View Highlight)
• Never assume your portfolio will be able to beat inflation in retirement. That is, do not set a real return higher than 0%! A poor sequence of returns (such as the one in play) can deplete your corpus fast (View Highlight)
• The above implies that you should not have significant equity allocation regardless of when you retire! For a person retiring at 40, the freefincal robo advisory tool recommends an overall 37% equity allocation to be distributed among three buckets – (View Highlight)
• Do not think of early retirement unless you have enough resources to live off a safe fixed-income instrument with withdrawals increasing 6% a year for the first 15 years in retirement. Additional resources are necessary to beat 6% inflation for the remaining years of retirement and these can be invested in different buckets. See: Retirement plan review: Am I on track to retire by 50? This is a reasonably robust way to handle bear markets in the initial phase of retirement. (View Highlight)