The dream of retiring early is enticing, but how feasible is it for the average New Zealander? With the country's retirement age potentially rising, many are left wondering if they'll ever truly escape the workforce. But here's the catch: you might be able to retire early, but it's not without careful planning and a substantial nest egg.
The big question is: how much money do you need to retire early? One strategy is to accumulate a large sum, allowing you to withdraw a portion annually to replace your income. This is a common approach with KiwiSaver, but retiring early means you'll need more since you won't have the NZ Super until age 65.
To calculate this, Rupert Carlyon, founder of Koura, suggests assessing current expenses and those that would cease upon retirement, then considering future expenses. By determining weekly costs, you can work backward to find the lump sum needed to generate sufficient income.
Carlyon recommends withdrawing 4% of your investment portfolio annually. For instance, if you desire $100,000 annually, you'd need approximately $2 million saved. However, this calculation doesn't consider the NZ Super, which becomes available at 65 and could contribute to the $100,000 income.
Ana-Marie Lockyer from Pie Funds offers a different perspective. She suggests that with a frugal lifestyle, you'd need $350,000 to $500,000 to retire at 60, and $550,000 to $700,000 at 55. These figures assume home ownership without a mortgage, which significantly reduces costs. Location also matters, with urban areas like Auckland, Wellington, and Christchurch being more expensive.
Some might opt to live off investment income, such as rental properties. Investment coach Steve Goodey proposes that owning four to five properties with low or no debt could be enough to retire. Others, like Claire Matthews, author of the Massey University retirement guidelines, emphasize that retirement savings depend on individual goals and plans to work.
Retiring early might mean different things to different people. It could be living in a campervan and traveling, or it might involve downsizing and maintaining a simple lifestyle. Economist Ed McKnight highlights that some may rely on a partner's income or rental properties, while most will depend on liquid assets like cash, shares, or managed funds.
The source of this retirement fund is crucial. Often, it comes from selling an investment property or a business. McKnight shares an example of a client who draws $60,000 annually from a managed fund without depleting the balance due to strong returns. He advises consulting a financial advisor to ensure confidence in your retirement plan.
But here's where it gets controversial: how much will your expenses truly decrease after retirement? Owning a home comes with unavoidable costs like rates and insurance, which can amount to thousands annually. Carlyon warns that early retirees often have active plans, requiring a realistic assessment of expenses.
And what about government support? While possible, relying solely on government benefits is not ideal or enjoyable. Basic JobSeeker for a single person is meager, and there are expectations to actively seek work.
So, the path to early retirement is a delicate balance of savings, investments, and lifestyle choices. It's a challenging journey, but with the right planning, it might just be within reach. What do you think? Is early retirement a realistic goal for most New Zealanders, or is it a pipe dream?
