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Early retirement & Can I retire early

, March 29, 2016, 0 Comments


Early retirement phenomenon is getting popular among Indians. Visit any financial forum and you would find that the most asked question is ‘which is the best mutual fund’ and ‘I have X amount of money, can I retire early’.

Early retirement refers to taking permanent retirement from your corporate job and pursuing your passion. Passion can be subjective to many people and may or may not be revenue generating avenues. For some, travelling may be passion. They may or may not make money out of it.

This early retirement is propagated by many international bloggers like Sam of financial samurai or Jacob of early retirement extreme. The advantage of pursuing early retirement is that you tend to save loads of money at the earliest. However, we the Indians cannot simply copy paste their strategy.

Let us see the reasons:

Early retirement does not focus on compounding. Reason being, if you want to retire early you have to save loads of money now. There is not time for compounding. Hence, it has to be saving saving and saving. In India, where inflation is double digits, saving alone would not be beneficial.

When they say early retirement, they mean retirement from the corporate world. They do not intend to sit on rolling chair and reading newspapers for their rest of the life. In India, when we say retirement, for most of the folks, it is watching TV or reading newspaper for rest of their lives.

The corpus that they had accumulated while leaving corporate job was more or less enough for 15 years. The interest accumulated and their part time hobbies would be sufficient for them. How many of us have such money minting hobbies?

Their lifestyles are extremely frugal. They avoid cars and cycle most of the places. Apart from willingness, we cannot cycle because of the infrastructure that we (don’t) have. How many roads are cyclists friendly?

Most of these bloggers have rental properties. The rent of their properties is less than or equal to the EMIs that they are paying. In essence, somebody is building an asset for them. If you compare the situation here, then the rents are 10% of the EMIs. Hence, copy paste here won’t work.

Inflation in their countries is around 1% or less. Their net return from their investments is around 6%. Hence, they prefer or can afford 3-4% withdrawal rate. Our inflation is around 12% and debt products, offer 7% post tax returns. Equity just manages to negate inflation with a 12% CAGR.

Education (till equivalent of SSC and HSC) is highly subsidized or free in most of their countries. For US, inflation in education is 15-20%.

They are part of EU region, can move to any other country with cheaper accommodation and living with equal benefits and compensations. Can we move to rural parts of India, where the frequency of ST bus is once every 3-4 hours and you would get water only once a week?

They have the cushion of social security.

They have the mentality of buying second hand products and using it till the end (either product’s end or user’s death).

They have community colleges, free libraries and government support for entrepreneurship.

Note: ‘They’ always refer to early retirement bloggers and its advocates.

If you notice, Jacob lives on less than 10% of what other Americans live on. Say if the average person spends 20k rupees, can you live on 2000?

Sam of financial samurai advises to purchase car not exceeding one tenth of your income. Suppose an average person earns 5 lacs per annum. Will he buy car for 50,000? Karizma costs around 1.15 lacs.

There could be many reasons, but 11 are enough to start. The purpose of this post is not to discourage you to save money or discourage you seeking early retirement. The purpose is to make you aware of the challenges that we have here due to infrastructure, our own mental bias and challenges of the developing nation. The only thing that we can focus on is savings and investment. If favourable time (and money) comes, we too can go for the early retirement.