India is truly a land of great contrasts. On one hand we keep hearing about difficulty in getting jobs and job losses in a variety of sectors. On the other hand we see people just coming out of colleges getting salaries that their parents did not get even when they retired. The vast majority are forced to work till very late in their lives, yet we have some who plan to retire at a relatively early age. In this post I wanted to share about a reader who wanted to check with me as to whether he could retire at 41.
This person, let us call him Ravi, is atypical in many ways. He is currently employed and is 27 years old. Even at this young age he is clear that he would like to pursue his passion seriously when he is 41. So much so, that he is unwilling to get married and start a family, which he feels will hinder him from achieving his goals. His parents are also self sufficient and have even contributed to his NPS till he got started in his job. The objective of giving this background is simple – I want readers to understand that not all of us can look at this plan, most of us have families and will need a whole lot more to run our lives as well as to retire.
With that proviso, let us look at Ravi’s current situation :-
- His current NPS balance is 9 lacs. We will assume he keeps it at this and lets it grow at a rate of 10 % every year. He will have 34 lacs in 14 years time.
- His monthly surplus is 60000 Rs today. We will assume it stays at this level for 6 years and then goes up to 90000 for the rest of the period.
- We will assume that his Equity to Debt allocation is 60:40. So for first 6 years he will invest 40000 per month. This will lead to 1.7 crores in 14 years at 12 % return annually.
- For next 8 years he will invest 58000 in equity every month. The extra 18000 for 8 years will add up to 29 lacs at 12 % rate of return.
- For the debt allocation, these figures will be 62 lacs and 16 lacs at 8 % annual return.
- Ravi’s total corpus when he is 41 years will therefore be 3.12 crores.
Let us now look at how much Ravi will be needing :-
- As he lives in a smaller town his current expenses are only 25000 Rs per month or 3 lacs annually.
- At 41 we can assume this to be in the region of 7 lacs annually.
- Let us assume Ravi will live for another 45 years from 41. At a conservative level his corpus should be 45 x 7 lacs or 3.15 crores.
- How should he deploy his money so as to get a passive income of 7 lacs annually? In this case as he has enough money, so keeping it in any instrument which matches inflation will suffice. However, as a good financial practice he should deploy his money as suggested in some of my blog posts earlier.
So, Ravi can retire at 41 which is great for him. What works for him is lesser responsibilities and ability to invest a lot at an early age. His parents have also contributed to his NPS which adds up. People with wife and children will find it really hard to retire at 41. However, something like 50 is still quite possible.
I will be happy to receive and answer any queries that the blog readers may have.