Planning to Retire at 45? Get a Detailed Understanding of Your Retirement Calculation

“All work and no play makes Jack a dull boy” is a widely used idiom; well this is also applicable after you have reached the age of 45. You aren’t going to work throughout your entire life. After a certain age, your body demands rest. However, I have met people who do not consider the idea of an early retirement to be a positive one. They believe that 45 is the age when a career is at its peak, and retiring at this age is a sheer injustice to a bright future and a promising career. However, if you look at early retirement as a positive, it can help you to embark on a new phase of your life.

Being a financial advisor, I have known several examples of people who have planned to retire at the age of 45 – allowing them to utilize their time and energy to travel around the world and explore other pursuits.

When we are young, we inevitably have goals that we are unable to accomplish. For instance, I always wanted to join the Teach for India program, visit Egypt to see the pyramids, and write my own novel.

How About You?

If you are still unsure about opting for an early retirement, and even pension plans are unable to convince you, then you should read the information discussed below to better understand whether you are ready to retire at the age of 45. Consider this:

  • Some people tend to operate at a low productivity rate as they get into an office routine; doing the same thing again and again. They might be efficient at their craft, but the industry fails to excite them anymore and they need to step away.
  • There are people who have quite a financially responsible mindset. They start investing at an early age, plan their finances thoroughly from the beginning, and stick to a thrifty mentality. They do not have any loans, saved decently, and possess fixed assets. Moreover, they are happy with what they possess and don’t need to continue chasing unnecessary frivolities.
  • There are people who are content with their current living standards. They have a well-established lifestyle that they have maintained for at least five years.
  • Those who would like to rely on hobbies or other skills for a living. This will not be on par with the lucrative salaries paid by multinational companies in terms of take-home. However, that is less significant here, as the main focus is pursuing what you always wanted to but couldn’t due to other responsibilities.
  • Further, there are people who have been working so hard that they need to relax and take a break. Thus, they wish to retire at an early age in order to spend time with their family.
  • There are people who have kids who need their time and nurturing while they are growing up.

If any of these scenarios describes you, then you are one of the select few for whom planning an early retirement is good choice.

Retirement Planning

Now, I would like to present a case study that you can use as a basis for your retirement planning.

Mr Bharat Borana started working as a java developer at a multinational corporation, and gradually he reached an upper-level managerial position. After reaching the age of 40, he was feeling the exhaustion from his work pattern and wished to retire from his daily schedule. This is the reason he decided to plan for an early retirement years before. Like others, he was a bit skeptical about the idea of early retirement, as he had a family to support. He had to cover the education of his two children and also perform other social and moral duties as a parent. But he so wanted to break the monotony that he went to financial planners in order to retire as soon as possible. You might be wondering what magical calculation these planners did to help Bharat get the breakthrough of his life and help him to retire within just five years?

Bharat planned his retirement early and, thus, started saving money early on, as well as investing in the equity market when he was just 27. Moreover, he invested in diverse fields such as equity market, ULIPs (Unit Linked Insurance Plans), fixed assets (that can earn income for you regularly), fixed deposits, and bonds. This planning helped him to accrue more than 10,000,000 crore INR (approximately $147,000 U.S. dollars) in the form of fixed assets as well as liquid money by the age of 41. As he wanted to retire at the age of 45, and began planning for retirement at age 27, he has 18 working years to realize that goal. We will assume that he gets to live for about 80 years. Looking at the above figures, the total calculation with the present monthly income would be: (all values in Indian crore)

  • At present total savings + investment: 10,000,000+/-
  • Life expectancy: 80 years
  • Expected retirement age: 45
  • Current Age: 27
  • Estimated annual rate of return: 10 %
  • Current monthly expenses: 40,000
  • Estimated monthly expenses: 50,000
  • Inflation rate: 7.5%

If you use the case mentioned above in order to estimate your own retirement plan, then you would require a sum of 1,00,87,666+/- INR to retire at the age of 45.  

Moreover, the monthly expenses on retirement must be 48,655 INR and the required monthly saving must be 148,774 INR.

If you invest wisely and properly plan your savings while working, then you can quite easily save large sums that can help you to retire early. If you expect to live for about 75-80 years, which is 25 years after you retire, then you need to have a proper income source, be it from your investments or income from fixed assets. Moreover, if we consider inflation, we must not forget the case that the income from your sources will also tend to increase at the same time. This will be good enough for you to lead a comfortable life even if you plan to retire at the age of 45.

Furthermore, there are several pension calculators that are available online to estimate your required monthly savings, plus the total savings needed, to plan the monthly expenses during your retirement years.

Your Call!

Like me, there are several people out there that are waiting for the right time and opportunity to explore their creative pursuits in this hectic lifestyle. To practice their hobbies, people like me try to take out time during weekends and public holidays, but are unable to do so.

Moreover, in this cut throat competitive world, we immerse ourselves so much so that we need some time to relax and prepare ourselves for the battle of the next week. Time goes on and we not only fail to practice our hobbies, but even forget them. Well, I certainly plan to retire at the age of 45, in order to pursue activities that I want to but cannot with my current lifestyle and limited time. How about you?