'Nothing wrong with wanting to retire early but...': Zerodha's Nithin Kamath has a retirement warning

The idea of quitting work for good and living off your savings is tempting, but retiring early isn’t just about stacking cash. 

Zerodha founder Nithin Kamath cautions that while the Financial Independence, Retire Early (FIRE) trend is catching on, too many people are blindsided by the hidden costs—both financial and emotional.

"There’s nothing wrong with wanting to retire early, but retirement isn’t just about money," Kamath wrote in a post. 

So what exactly is FIRE?

FIRE enthusiasts aim to save and invest aggressively, with the goal of building a nest egg that can sustain them for decades. The common formula is saving a corpus roughly 30 times your annual expenses. But is that realistic? Prateek Singh of LearnApp challenges this, pointing out that expenses don’t remain fixed; they evolve, especially over decades.

Singh warns that people often underestimate future expenses like medical emergencies and the costs of living longer than expected. "You’ll need a substantial emergency fund to account for these unpredictable challenges," he says, urging a more conservative financial plan.

Kamath adds that there’s an emotional aspect to consider. “Retirement isn’t only a financial milestone; it has psychological dimensions too,” he notes. A fulfilling life post-retirement requires planning that goes beyond numbers on a spreadsheet.

For instance, a 40-year-old planning to retire at 45 would need ₹6.5 crore, whereas waiting until 60 requires a whopping ₹14.7 crore. The calculation assumes a current monthly expense of ₹1,00,000, a life expectancy of 90 years, an 8% inflation rate, and a 9% return on the retirement corpus, yielding a real rate of return of just 0.93%.

Achieving this smaller corpus in a shorter timeframe takes significant investment effort. To hit ₹6.5 crore by age 45, one would need to start investing at 25, committing to a monthly SIP of ₹65,300, or ₹33,000 with a 10% annual step-up. In contrast, aiming for ₹14.7 crore by age 60 requires a monthly SIP of just ₹22,700, or ₹8,300 with a 10% step-up. Despite the higher savings target for a later retirement, the longer investment horizon makes accumulating the corpus less strenuous. Both scenarios rely on a 12% annual return, emphasizing the critical balance between time, investment effort, and the power of compounding.

“The financial independence part is crucial, but this idea of retiring early is often not thought through,” Deepak Shenoy of Capitalmind argues. Many assume they’ll be happy not working, but reality can be different.

On social media, users debate the FIRE approach. Some warn that safe withdrawal rates should be no more than 3% of your portfolio annually to avoid running out of money. Others say 50x your annual expenses is a safer bet, given market volatility and lifespan uncertainties.

Practical Steps to FIRE

• Evaluate your financial health and set adaptable goals.
• Invest in salary protection for job security.
• Balance debt repayment and asset investments.
• Prioritize saving over spending to build long-term wealth.
• Be frugal but don’t skimp on essentials like healthcare.
• Diversify your investments for steady passive income.