Retirement Planning: Want to retire at 50? Know how FIRE model may help you achieve this goal

Retirement Planning: The FIRE model originated in 1992 with the book Your Money or Your Life by Vicki Robin and Joe Dominguez. Under the FIRE model, you can decide your own retirement age. However, if you adopt this model, you will have to make a special strategy and may have to put up to 70 per cent of your salary in savings.

Everyone does retirement planning, but there are very few people who plan early retirement.

Early retirement means retiring before the age of 60 years.

For this, you have to invest a little more during your job, so that a strong retirement corpus can be accumulated.

To retire early, you will have to start investing early and invest more than necessary.

If you also want to retire early, you can start your retirement planning under the FIRE (Financial Independence, Retire Early) model.

The FIRE model originated in 1992 with the book Your Money or Your Life by Vicki Robin and Joe Dominguez.

Under the FIRE model, you can decide your own retirement age.

However, if you adopt this model, you will have to make a special strategy and may have to put up to 70 per cent of your salary in savings.

Though you have to cut down on some of your expenses to follow this model, it may give you the freedom to retire early as early as 10 years.

Calculate your FIRE number

Knowing the FIRE number means at what age you want to retire.

For this, you will have to do the calculations keeping in mind your salary, your expenses, your lifestyle and the lifestyle after retirement.

If you are not able to do the calculations yourself, you can also take the help of a financial planner.

Increase savings and reduce expenses

Under this model, it is most important that your savings should be maximum.

Under this, you will not only have to control your expenses, but will also have to try to reduce them.

The more you invest, the sooner you will be able to retire and the higher your pension will be at retirement.

Focus on increasing income

If you do a high-paying job then it is fine, otherwise, you will have to focus on increasing your salary too.

You can look for a job that pays well.

You can also do some part-time or freelancing work, so that you can earn some extra income.

You will benefit from this additional income that you will be able to invest more and more money.

Where to invest money?

While investing money, you will have to take some risk.

Try to invest in a variety of tools.

For example, you can invest about half of your investment in the stock market or mutual funds.

With some portion, you can buy a rented property so that money keeps coming in for years.

Even by purchasing land, you can get strong returns on it.

You can also invest some money in tools like PPF.

In these tools, you get fixed returns only on PPF, the returns on the rest are not fixed, so you cannot decide from where and how much return you will get.

Keep tracking your investments regularly and make immediate changes to your portfolio whenever needed.

Understand this with an example

First of all, let's accept some standards.

Suppose you are 25 years old and your salary is around Rs 40,000 and you live a very simple life.

Let us assume that you spend Rs 25,000 every month on rent, ration, travel, entertainment, health insurance, life insurance, etc.

If you invest money taking a little risk, you can get an average return of about 12 per cent from mutual funds.

Whereas, if you invest in PPF and assume that the interest rates will not change, then you will get a return of about 7.1 per cent.

It is expected that by investing in property, you will get an average return of 12 per cent in the long term.

In such a situation, by investing in different places, you will get an average return of 10 per cent.

Increase saving amount by 10% every year

Now let us assume that you invest 50 per cent of your total savings in mutual funds and 25-25 per cent in PPF and property.

The question here is how much money to invest?

To know how much money to invest, you need to know how much money you will need at retirement.

Let us assume that your salary will increase at an average rate of 10 per cent annually in the long run.

In such a situation, not only will your expenses increase every year, you will also have to increase your savings by 10 per cent.

How to retire at the age of 50

If you want to retire at the age of 50 and your current expenses are Rs 25,000, you will need around Rs 80,000 at the time of retirement to meet inflation.

For that, you will have to make a corpus of around Rs 2 crore.

To achieve that goal, you will have to invest about Rs 6,000 every month and increase it by 10 per cent every year.

In this way, you will accumulate a corpus of around Rs 2 crore at the age of 50.

One thing to keep in mind here is that if you are retiring soon, you will have to think about 50-60 i.e. additional 10 years.

In such a situation, if you are planning retirement at 50 years of age, you will have to keep the next 10 years also in mind.

With an increase of 10 per cent every year, your monthly savings at the age of 50 will be around Rs 65,000.

If we assume that you need to invest the amount for that 10 years with 10% growth, then it comes to around Rs 2 crore.

That means, by the age of 50, you have to make such investments that a total corpus of Rs 4-5 crore is created.

In this way, you will have to start investing with around Rs 15,000, increasing it by 10 per cent every year, and at the age of 50, you will have accumulated a corpus of Rs 5 crore.

If you have invested for 60 years, you will need around Rs 1 lakh every month at that time.

(Disclaimer: SIP investments are subject to market risks. Do your own research or consult your advisor before investing.)