MR & Mrs Sharma have a long list of things to do post retirement. While Mr. Sharma, a private banker, wants to travel a lot and write a book, Mrs Sharma wants to look after their children and do some social work. The interesting part, however, is that they want to do this after 10 years, when they plan to retire! Yes, you are right, they do want to retire in their early 40s and wish to pursue their passions.

Just a minute...did we hear similar noises from you too? Alright, so let's see how this can be achieved with systematic planning that includes having reasonably aggressive investment plan, regular savings and may include a slight change in lifestyle to ensure a better and safe tomorrow. Early retirement is essentially a lifestyle issue and is proportionate to one's income and consumption pattern. To retire early, one needs to do careful planning and calibrated thinking.

Before making any retirement plan, one should first prepare a balance sheet listing current assets, current as well as future liabilities, annual savings, the rate at which you can increase them, keeping in mind the growth in your income and expenditure and major investments you plan to make (like buying a car or a house). This list can then be used to arrive at the amount you would need that should be sufficient to generate a regular stream of income, once you stop earning. While planning for early retirement, one should not just think of generating a regular monthly income. It's also important to keep in mind the inflation and the need to increase your monthly income, even when you are not earning.

This can be achieved easily by reinvesting a part of your returns to counter inflation. Inflation indices such as Wholesale Price Index (WPI) or the Consumer Price Index (CPI) do not reflect the actual increase in prices for a particular lifestyle. In one's retirement planning, a figure that is somewhat 30% higher than these numbers is a more realistic estimate. The next step is to decide a realistic timeframe, in which you would be able to build this amount from returns on your investment. There are several investment avenues such as equity or related products, mutual funds, insurance, debt instruments (like bonds, PPF account) or counter-inflation products such as gold and real estate, available in the market for investment.

Building your portfolio for early retirement is like making your cup of tea. Chini kum or more, all depends on your personal choice! Although there are no standard asset allocation criteria, one can follow the experts who advise to diversify one's portfolio to minimise risk and still get good returns.

"For a person who wants to retire early, I would suggest to park around 50-60% of savings in regular income products like monthly income plans (MIPs), post office saving schemes, around 30% in equity-related products and mutual funds and the balance 10-20% in insurance products," says Reliance Money director and CEO Sudip Bandyopadhyay.

While fixed-income avenues such as FDs, bonds, PPF, post-office saving schemes, give a safe return of 6-9% PA, gold as an investment has given a compounded return of roughly 10% in the last 10 years. However, over a 20-year timeframe, returns on gold have been a paltry 2.5%.

Equities and equity-related products on the other hand, are considered to be riskier but historically have given much higher returns. Take the case of Sensex, which hit the 1,000-mark in 1990.

And since then it has given an compounded return of 18.7% This means if you had invested Rs 1,000 in July 1990 (when it hit 1k), the amount would have swelled to 20,000 by now.

If Mr Sharma, who has a current amount of Rs 10 lakh; annual savings of Rs 1 lakh and expects to increase his savings by 10% every year, invests half of the current amount (Rs 5 lakh) and half of future savings (Rs 50,000) in equities and the other half in fixed income products, they would give an amount of Rs 66 lakh after 10 years, equivalent to today's Rs 36 lakh.

Instead, if he invests all his savings in equities, his amount would grow to around Rs 90 lakh in 10 years from now, provided he is able to generate a return similar to the historical return of Sensex.

This Rs 90 lakh would be equivalent to today's Rs 50 lakh if inflation rate is taken to be 6%. This translates into a fixed monthly income of Rs 1.4 lakh at the time of retirement. Instead, if he wants a regular increase in his monthly income every year, by say 6% to counter inflation, he should take out only Rs 95,000 and reinvest the rest.

"One thing that is to be remembered is that speculation has no play in getting good returns. You can't gamble your way to get higher returns. The fallout of this kind of planning can be that you won't be able to retire early and in fact would have to work for your whole lifetime," Mr Kumar adds.

Are you listening Mr Sharma?