Want to Retire Early? Use A Retirement Calculator to See How

Let us break it down and understand how you can use a retirement calculator to work towards your early retirement.

Why planning for early retirement is important

Early retirement means you’ll be without a fixed source of income for a longer time. That means your savings or investments need to sustain you for several decades. Without proper planning, there’s a risk of outliving your money.

Planning helps you identify the following:

• Financial needs after retirement
• Investments required now
• Lifestyle goals for the future

The earlier you start planning and investing, the more systematically and efficiently you can work towards your goals. A longer horizon means higher growth potential because it allows the power of compounding to work effectively on your investment. Compounding happens when the potential returns on your investment are reinvested and earn further returns. Over time, earning returns on returns can result in exponential long-term growth, as your investment base keeps growing steadily.

What is a retirement calculator?

A retirement calculator is an online tool that helps you estimate how much money you need for retirement. Based on details like your age, income, current savings, and expected expenses, it shows:

• How much should you invest each month?
• Whether your current investments are on track.
• What kind of returns should your investments aim for?

It is easy to use and saves you from the hassle of complex calculations.

Benefits of using a retirement calculator

Using a retirement calculator helps you make better decisions. Here’s how:

1. Personalised planning: By entering your age, income, expenses, and goals, you can create a customised retirement plan.
2. Adjustable scenarios: You can play around with different assumptions like retirement age, inflation rate, or investment returns. This allows you to prepare for different possibilities.
3. Clarity on shortfalls: If you are saving too little or investing in low-return options, the calculator can highlight the gap.
4. Ease of use: You don’t have to be a financial expert. A few clicks give you a clear picture of your financial future.

Planning retirement with an SWP

A Systematic Withdrawal Plan is a facility that allows you to withdraw money at regular intervals from your mutual funds. Instead of redeeming your entire corpus at one go, you can take income from it in instalments, while the balance amount continues to potentially grow. This can make your corpus last longer than withdrawing it in a lumpsum. An SWP can be particularly beneficial for retirees, potentially giving them a steady income stream.

How can an SWP calculator help?

An SWP calculator can help effectively plan this withdrawal strategy. Based on your corpus size, planned withdrawal rate, and the expected returns on your balance funds, the SWP calculator can tell you how long your corpus can potentially last and how many withdrawals it can facilitate. This can help you align your plans to your needs.

By using an SWP calculator along with a retirement calculator, you can plan both for building your corpus and for withdrawing from it systematically post-retirement.

Steps to plan your early retirement

Step 1: Estimate your retirement expenses

Think about your expenses after retirement. Don’t just account for basic needs like food and utilities. Add healthcare costs, travel plans, and lifestyle upgrades too.

Step 2: Use a retirement calculator

Enter your current age, income, expected expenses, and desired retirement age. Enter the expected returns on your investments. The calculator will tell you what your final corpus size should be to meet your desired post-retirement lifestyle.

Step 3: Create an investment plan

Based on the calculator’s results, calculate how much you need to invest each month. If the suggested amount feels unmanageable, consider ways to reduce expenses or increase income to close the gap.

Tips for effective retirement planning

1. Start early: The earlier you begin, the more time your money has to potentially grow through compounding.
2. Account for inflation: Expenses will increase over time. Make sure your retirement plan factors in inflation. Also consider investing in avenues that offer the potential to earn inflation-beating returns, such as equity mutual funds.
3. Review regularly: Life goals and economic conditions change. Check your retirement plan regularly and adjust as needed.
4. Diversify investments: Don’t depend on one type of investment. Spread risk across multiple asset classes. Combine high risk assets such as equities with stable avenues such as public provident funds, national pension scheme and other government-backed long-term investment initiatives.
5. Keep an emergency fund: Have a separate fund for medical emergencies or unplanned expenses.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.