We recently received an interesting question on YouTube: “What would be your advice to a person who wants to lead a luxurious life? For example, if a person who is 40 years old makes 50 lakhs annually after taxes, would you advise such a person to invest aggressively and retire by 50 or lead a more luxurious life and work till 58-60?”
It is interesting because of our perception of luxury. It is often confused with frequent extravagant spending. Occasional extravagance is not only ‘ok’ but perhaps necessary to ensure we are not deprived of allocating money for day-to-day expenses, debt and investments.
Also, age decides certain activities and related expenses. Some things are best done when you are young. These occasional extravagances can address this need from time to time.
So, we must balance investing for future needs (and wants) and spending for current wants. You cannot assume that you will have no wants after retirement and try to ‘exhaust’ all of them before you quit working.
If you increase your lifestyle now, you must assume it will persist beyond retirement and proportionately increase your investments for normal retirement. It is okay to live it up now, but plan for the part to continue after retirement.
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Living luxuriously could mean different things to different people. An early retirement plan should include a plan to spend time productively. So, it may mean the end of salaried employment but not the end of work. I believe doing work we love, honing our passion, and becoming better at something that interests us while offering value to others is the best luxury. So, if you have such a plan, the necessary corpus, and the associated investment, you can afford to retire at 50. It is crucial not to increase your lifestyle after retirement.
I can think of two choices:
(1) If you do not hate your current job, keep working until you can and spend on wants after you have invested enough for retirement. Review your retirement plan each year with updated inputs.
(2) If you do not like your current job, plan for early retirement. The most important part of this plan is an alternative source of income based on your interests and passion.