Retirement At 45: Steps and plans to follow for early retirement

More individuals are seeking to retire earlier, aiming for financial independence and a life of leisure well before the traditional retirement age. Retirement at 45 may seem like a lofty goal, but with careful planning and smart financial decisions, it can be within reach for many. Investing, setting your goal and planning your expenses may help you to retire early.

Retiring at 45 is an ambitious goal, but it is achievable with diligent financial planning and a commitment to saving aggressively. Here are some key tips and practices to follow, tailored to the Indian context:

1. Start early, Save aggressively


Begin saving and investing as early as possible to leverage the power of compounding. Aim to save at least 30-40% of your income and invest it in a diversified portfolio of stocks, mutual funds, and fixed income instruments. Consider automating your investments through Systematic Investment Plans (SIPs) to enforce discipline.

Top 5 stocks in India to consider for long-term investment:

  • Reliance Industries Limited (RIL)
  • Tata Consultancy Services (TCS)
  • HDFC Bank
  • Infosys
  • Hindustan Unilever Limited (HUL)

Top 5 mutual funds in India to consider for long-term investment:

  • SBI Bluechip Fund
  • Axis Long Term Equity Fund
  • HDFC Top 100 Fund – Growth
  • Kotak Standard Multicap Fund
  • Mirae Asset Large Cap Fund

You can also read – Top Gold Mutual Funds in India: A Guide for Gold Investors [2024 Updated]

2. Maximize retirement accounts

Take full advantage of tax-advantaged retirement accounts such as Public Provident Fund (PPF), National Pension System (NPS), and Employees’ Provident Fund (EPF). Contribute the maximum allowable amount each year to reduce your taxable income and accelerate your savings. Explore additional investment options like Equity Linked Savings Scheme (ELSS) for tax benefits.

To invest in tax-advantaged retirement accounts in India, follow these steps:

  1. Public Provident Fund (PPF):
    • Open a PPF account at a post office or a designated bank branch.
    • Minimum annual contribution is Rs. 500, and the maximum is Rs. 1.5 lakh per financial year.
    • Contributions are eligible for tax deduction under Section 80C of the Income Tax Act.
    • The lock-in period is 15 years, but partial withdrawals are allowed after the 6th year.
    • Invest before the 5th of every month to earn interest for that month.
  2. National Pension System (NPS):
    • Register online at the official NPS website or visit a Point of Presence (POP) service provider.
    • Choose between the auto choice (lifecycle fund) or active choice (self-managed) investment option.
    • Minimum annual contribution is Rs. 1,000 for Tier 1 accounts and Rs. 250 for Tier 2 accounts.
    • Contributions to Tier 1 accounts are eligible for tax deduction under Section 80CCD(1B) up to Rs. 50,000, in addition to the Section 80C limit.
    • Invest regularly through online or offline methods, such as SIPs or lump sum payments.
  3. Employees’ Provident Fund (EPF):
    • EPF is mandatory for employees working in organizations with 20 or more employees.
    • 12% of your basic salary and dearness allowance (DA) is deducted and invested in EPF.
    • Your employer matches this contribution, and the total amount is invested in EPF.
    • Contributions are eligible for tax deduction under Section 80C.
    • Interest earned on EPF is tax-exempt, and the maturity amount is also tax-free if you have completed 5 years of continuous service.
  4. Equity Linked Savings Scheme (ELSS):
    • ELSS is a type of mutual fund that invests primarily in equities and offers tax benefits.
    • Select an ELSS fund based on your risk tolerance, investment goals, and fund performance.
    • Invest through a mutual fund house, a broker, or an online investment platform.
    • Minimum investment amounts vary by fund but typically start at Rs. 500.
    • Contributions are eligible for tax deduction under Section 80C up to Rs. 1.5 lakh per financial year.
    • The lock-in period for ELSS funds is three years from the date of investment.

Remember to:

  • Link your PAN and Aadhaar to your investment accounts for seamless KYC and tax compliance.
  • Spread your investments across multiple instruments to diversify your portfolio and manage risk.
  • Review and adjust your investments periodically based on your financial goals and market conditions.
  • Consult with a financial advisor to develop a personalized investment strategy that aligns with your retirement goals.

By consistently investing in these tax-advantaged retirement accounts and maximizing your contributions each year, you can significantly reduce your taxable income and accelerate your savings for an early retirement in India.

3. Invest wisely

Develop a solid investment strategy based on your risk tolerance, time horizon, and financial goals. Consider a mix of low-cost index funds, diversified mutual funds, and blue-chip stocks for long-term growth. As you approach retirement, gradually shift to more conservative investments like debt funds and fixed deposits. Regularly review and rebalance your portfolio to maintain your desired asset allocation.

How to invest wisely for retirement in India:

  1. Assess your risk tolerance and financial goals.
  2. Diversify your investment portfolio across asset classes and within each class.
  3. Invest in low-cost index funds and ETFs for broad market exposure.
  4. Allocate funds to diversified mutual funds based on your risk profile.
  5. Invest a portion in blue-chip stocks with strong fundamentals.
  6. Gradually shift to conservative investments like debt funds and fixed deposits as you approach retirement.
  7. Regularly review and rebalance your portfolio to maintain desired asset allocation.
  8. Stay informed and educate yourself on market trends and investment concepts.

4. Create multiple income streams

Diversify your income sources to enhance financial stability in retirement. Explore rental income from real estate investments, dividends from stocks, and interest from fixed deposits. Consider starting a side business or freelancing to generate additional active income during your working years.

How to create multiple income streams for a more stable retirement in India:

  1. Real estate investments: Generate rental income from properties.
  2. Dividend-paying stocks: Invest in companies with consistent dividend payouts.
  3. Fixed deposits and bonds: Earn stable interest income from FDs and bonds.
  4. Side business or freelancing: Monetize your skills and expertise.
  5. Peer-to-peer lending: Invest in P2P lending platforms for returns.
  6. Royalties and intellectual property: Generate income from your creations.
  7. Annuities: Receive guaranteed regular payments from insurance companies.

When diversifying your income streams, consider:

  • Aligning investments with your risk tolerance and goals.
  • Staying informed about tax implications and regulations.
  • Regularly reviewing and adjusting your strategy.

Consult with a financial advisor to develop a personalized income stream plan for a stable retirement in India.

5. Plan for healthcare costs

Factor in the rising cost of healthcare in India when planning for retirement. Consider purchasing a comprehensive health insurance policy and building an emergency fund to cover unexpected medical expenses. Explore options like top-up plans and critical illness riders for additional coverage.

To plan for healthcare costs in India during retirement, consider the following steps:

  1. Purchase comprehensive health insurance:
    • Research and compare health insurance policies from reputable insurers.
    • Look for plans that offer wide coverage, including hospitalization, daycare procedures, and pre-existing conditions.
    • Consider factors like the sum insured, network hospitals, and policy terms when selecting a plan.
    • Pay attention to the waiting periods, exclusions, and co-payment clauses in the policy.
  2. Opt for top-up and critical illness plans:
    • Top-up plans provide additional coverage beyond your base health insurance policy, helping to manage high medical expenses.
    • Critical illness plans offer a lump sum payout if you are diagnosed with a specified critical illness, providing financial support during treatment and recovery.
    • Evaluate your specific needs and budget when choosing these additional coverages.
  3. Build an emergency fund:
    • Set aside a portion of your savings specifically for unexpected medical expenses.
    • Aim to save at least 3-6 months’ worth of living expenses in a liquid, easily accessible account.
    • Consider opening a separate savings account or liquid mutual fund for your emergency fund.
  4. Invest in health savings instruments:
    • Explore health savings instruments like the Pradhan Mantri Jan Arogya Yojana (PMJAY) or the Senior Citizens’ Saving Scheme (SCSS).
    • These schemes offer tax benefits and can help you save specifically for healthcare expenses.
  5. Maintain a healthy lifestyle:
    • Prioritize preventive healthcare by undergoing regular check-ups and screenings.
    • Engage in regular physical exercise, maintain a balanced diet, and manage stress levels.
    • Adopting a healthy lifestyle can help reduce the risk of chronic diseases and the associated medical costs.
  6. Keep track of medical expenses:
    • Maintain a record of all your medical bills, prescriptions, and receipts.
    • Monitor your healthcare spending to identify areas where you can optimize costs.
    • Claiming tax deductions on eligible medical expenses can help reduce your tax liability.
  7. Plan for long-term care:
    • Consider the potential need for long-term care in case of chronic illness or disability.
    • Research long-term care insurance options and assess their suitability for your needs.
    • Discuss long-term care preferences with your family and incorporate them into your retirement planning.

Remember to review and update your health insurance coverage regularly, especially before and during retirement. Stay informed about changes in healthcare policies and tax laws that may impact your retirement planning. Consider consulting with a financial advisor specializing in retirement planning to create a comprehensive strategy that accounts for your healthcare needs and costs in India.

6. Optimize your lifestyle

Achieving early retirement often requires living below your means and making conscious lifestyle choices. Avoid unnecessary expenses, limit discretionary spending, and focus on experiences rather than material possessions.

Consider relocating to a lower cost-of-living city or town in retirement to stretch your savings further.

To optimize your lifestyle for early retirement in India, consider the following strategies:

  1. Create a budget and track expenses
  2. Reduce housing costs
  3. Optimize transportation costs
  4. Cut discretionary expenses
  5. Embrace minimalism
  6. Boost your income
  7. Prioritize health and wellness
  8. Continuously educate yourself

7. Leverage government schemes

Take advantage of government-sponsored retirement schemes and benefits. Research options like the Atal Pension Yojana (APY), which provides a guaranteed pension based on your contributions, and the Pradhan Mantri Vaya Vandana Yojana (PMVVY), which offers assured returns for senior citizens. Stay informed about changes in tax laws and new schemes that may benefit your retirement planning.

To take advantage of government-sponsored retirement schemes like Atal Pension Yojana (APY) and Pradhan Mantri Vaya Vandana Yojana (PMVVY), follow these steps:

  1. Atal Pension Yojana (APY):
    • Eligibility: You must be an Indian citizen between 18 and 40 years old and have a savings bank account.
    • Enrolment: Visit your bank branch or apply online through your bank’s website or the official APY website.
    • Choose your desired pension amount (Rs. 1,000 to Rs. 5,000 per month) and the corresponding contribution amount based on your age.
    • Provide the necessary documents, including proof of identity, address, and age.
    • Ensure that your bank account has sufficient funds for auto-debit of the contribution amount.
    • Your APY account will be opened, and your contributions will be invested in government bonds.
    • At the age of 60, you will start receiving the guaranteed monthly pension based on your contributions.
  2. Pradhan Mantri Vaya Vandana Yojana (PMVVY):
    • Eligibility: You must be a senior citizen (60 years or above) to invest in PMVVY.
    • Enrolment: Visit the nearest Life Insurance Corporation (LIC) branch or an authorized bank branch.
    • Fill out the PMVVY application form and provide the necessary documents, including proof of identity, address, and age.
    • Choose the pension mode (monthly, quarterly, half-yearly, or yearly) and the pension amount (minimum Rs. 1,000 per month, maximum Rs. 9,250 per month).
    • Make the lump sum payment for the pension plan. The minimum investment is Rs. 1,56,658, and the maximum is Rs. 15 lakh.
    • Your PMVVY account will be opened, and you will start receiving the assured pension based on your chosen mode and amount.
    • The scheme has a tenure of 10 years, and the pension is payable for the entire duration.

To stay informed about changes in tax laws and new government schemes:

  • Regularly visit the official websites of the Income Tax Department, Ministry of Finance, and relevant government bodies.
  • Subscribe to email updates or newsletters from these government entities to receive timely information.
  • Follow reputable financial news sources, magazines, and blogs that cover updates on tax laws and government schemes.
  • Consult with a financial advisor or tax professional who can guide you on the latest changes and how they may impact your retirement planning.

By investing in government-sponsored schemes like APY and PMVVY, you can secure a guaranteed pension and assured returns, which can supplement your other retirement savings and investments. Staying informed about tax laws and new schemes can help you make the most of the available benefits and optimize your retirement planning in India.

8. Seek professional advice

Consult with a qualified financial advisor or retirement planning expert to develop a comprehensive plan tailored to your unique circumstances. They can help you navigate complex investment options, optimize your tax strategy, and ensure you’re on track to achieve your early retirement goals. Regularly review and adjust your plan as your life evolves.

Retiring at 45 in India requires careful planning, disciplined saving, and smart investing. By starting early, maximizing retirement accounts, creating multiple income streams, and optimizing your lifestyle, you can work towards achieving financial independence at a younger age. Remember to continuously monitor your progress, seek professional advice, and remain adaptable to changing circumstances. With dedication and the right strategies, early retirement can be within your reach.

Please ensure to consult your financial advisor before making any investments.