In this article, reader Sampath explains why he had to postpone his plans for early retirement. His story is a lesson that we must be ready to adapt to the ups and downs of life.
Dear freefincal readers, my name is Sampath. I will be 47 in Jan 2023. I have always been fascinated by early retirement but was confused about its meaning and how to go about it.
Thanks to the enormous literature available at freefincal and their robo-advisory tool, I understood how to plan for early retirement and what to do afterwards. For instance, I realised that “early retirement is only from a salaried existence and not from gainful employment”.
For the last six years, I have been planning what I want to do after I quit my salaried job. I studied the lifestyle of several online entrepreneurs and figured out how to run an online business with minimal overheads.
I invested more than twice my monthly expenses in an aggressive (60% equity) portfolio for the last 10+ years, driving the growth in my retirement portfolio.
A few months ago, I went past 45X. My retirement corpus was 45 times my annual expenses (X). So I was all ready to take the plunge and quit my job. I even started mentally framing my resignation letter.
I wanted to double-check the plan one more time. Two things happened.
(1) As my wife and I sat down to review the plan, we noticed that our annual expenses had increased by about 17% (compared to what I assumed it was). We made the mistake of assuming our existence was always frugal. Over the last few years, as my salary grew, we embraced new technology and gadgets.
This meant my retirement corpus was only 38X and not 45X as I had imagined. The inverse of this corpus multiple is the initial withdrawal rate. At 45X, the rate was 2.2%, and at 39X, it increases to 2.6%
It is still comfortable and something I could retire with, but it scared me. I berated myself for making such a huge error. I should have taken the pains to find out my monthly expenses each year and fed that into the Robo-advisory tool.
My wife asked if I was sure about quitting. I was because I was already getting a side income from digital product sales close to updated monthly expenses after tax. If I quit, I would have time to offer consultancy services, and we could comfortably manage without touching our accumulated corpus except for emergencies.
(2) At this time, something unspeakable occurred to one of my relatives. Suddenly their income sources stopped, and they had no way to fund their child’s future expenses. We had to step in and help them out. There was no question about this because my late uncle (the child’s grandfather) had helped my family so many times before. I could not live with myself if we did not help now. Thankfully my wife came to the same decision even before I did.
This meant a big change in my financial situation. My annual expenses increased, and my retirement corpus will also deplete by some amount. I expect my initial withdrawal rate to increase by at least 1% to 3.6% – 4%.
Although I can still manage expenses with my consultancy, I am no longer confident about quitting my job. So I have decided to postpone retirement by three years which I hope is enough time for me to settle my nephew’s affairs. I will be 50 by then, so it will no longer be an “early” retirement!
I wanted to share this story with freefincal readers for two reasons: (1) Always review your plan with current data. Do not take any of the inputs or assumptions for granted. (2) The saying, “Man proposes, God disposes”, came true in my life. However, this does not mean all planning is useless. Inspite of these setbacks, I am still in a good place because of planning and implementation, just that we should not assume that everything will go to plan and be ready to adapt.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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