Early retirement is a dream for many but a reality for only some. Planning for early retirement requires more than wishful thinking but a careful focus on financial planning. The secret to achieving an early, financially secure retirement is long-term income strategies that provide passive income sources to ensure you are covered for the future, allowing you to experience the freedom to leave the 9 to 5 routine sooner than the majority!
Here are a few long-term income strategies that can put you on the road to financial independence sooner.
Life Insurance as Long-Term Investments
When we hear “life insurance,” many of us picture a safety net for our loved ones. But it can be so much more. Some life insurance plans, such as endowment plans and whole-life plans, are also investment instruments. These are the products that help you create a corpus over the years while keeping your family financially secure.
An example of that is a unit-linked insurance plan (ULIP), which links insurance and investment. A fraction of your premium is dedicated to life cover, while the balance is put into equities or debt instruments, depending on your risk appetite. ULIPs often come with charges like premium allocation fees and policy administration fees, so their suitability depends on your investment horizon and risk tolerance.
SIP in Mutual Funds
Mutual funds, especially equity mutual funds, are great vehicles for long-term income. By investing a fixed amount regularly, your risk gets divided across different cycles of the market.
If you ride out the market’s volatile storm and stay invested for the long term instead, you’ll get to benefit from compounding — the magical process by which your money earns returns, and even those returns earn returns. Compounding works best when the returns are reinvested, which can help even small SIPs blossom into a big corpus, provided they are initiated early.
Play Safe with Public Provident Fund (PPF)
For risk-averse investors, the Public Provident Fund is a tried-and-tested instrument. With its government backing, PPF provides steady returns and tax benefits. While the returns are lower compared to some investments, like equities, they are relatively safer and, therefore, a must-have in a well-balanced portfolio. As of 2024, the PPF interest rate is 7.1 percent and is subject to periodic revisions by the government.
Investing in Real Estate for Passive Income
Real estate is one of the most sought-after long-term passive income strategies. Renting out properties can create consistent cash flow, which can help you replace your active income during your retirement. However, rental yields in India typically range between 2-3 percent, so property investments should be assessed for location, demand, and costs like maintenance and taxes. Additionally, real estate tends to increase in value, potentially providing capital gains in the long term.
Within real estate, it’s also smart to diversify with residential or commercial properties or even Real Estate Investment Trusts (REITs), which offer a lower barrier to entry and are market-linked.
NPS (National Pension System)
The National Pension System is specially formulated for retirement planning. It lets you invest in a combination of equities, government bonds, and corporate debt, with an equity allocation capped at 75 percent for individuals under 50 years of age. The NPS provides flexibility in mixing your investments and offers tax benefits.
At retirement, 60 percent of the corpus can be withdrawn as a lump sum, while the remaining 40 percent must be used to purchase an annuity, which provides a steady but relatively lower return compared to other investments.
Also Read: Investment Tips for Dads
Building Your Strategy
Diversification is the name of the game when it comes to applying these strategies. Diversifying your investments across various instruments allows you to optimise risk and reward while creating a strong financial buffer.
Start early. When dealing with long-term income strategies, your best friend is time. Through discipline, consistency, and wise choices, you can set yourself up for a comfortable, stress-free retirement—possibly even sooner than you thought.