How to Retire Early in New Zealand

Our definitive guide reveals proven ways to live on your terms, have a comfortable retirement and avoid the pitfalls and the risk of running out of money

Updated 9 November 2020

The average New Zealander typically retires around age 65, at least that’s the age that most superannuation plans start paying out. However, many people would ideally prefer to retire earlier. To guide you through everything you need to consider, our guide covers:

• 10 Proven Ways to Retire Early (and have enough money to last for a lifetime)
• How to Retire Early - Frequently Asked Questions
• How to Retire Early - Our View
• Reverse Mortgages - What You Need to Know

Know this first: How much money do you need to retire?

• Before we explain how you can retire early, it’s crucial to understand how much money you need to retire.
• On average, you need 25 times your annual expenditures to retire, but that’s if you retire at age 65. 
• If you retire earlier, you’ll need to add as many years as you retire early. For example, if you retire at 50, you’d need 15 more years of annual expenditures, for a total of 40 times your annual spending if you keep living the same lifestyle.
  
• You probably think that’s a significant number and it is, but there are simple ways to have the money you need to retire early.
  

Know this: Per our Retirement in a Nutshell guide, we believe that the BEST situation to be in at 64 is the following:

1. Own your home (with no mortgage owing)
2. Have no personal debts (credit cards, long-term finance etc.)
3. Have at least $100,000 saved (it may sound impossible, but it will make a big difference to your retirement)

10 Proven Ways to Retire Early (and have enough money to last for a lifetime)

Retiring early requires a lot of planning, preparation, saving and careful ongoing management. Our list below of ten must-know tips, will guide you from employment to a sustainable retirement. 

Make a plan for your retirement (it's never too early, and without one, you'll be lost)

• It’s simple: You can’t retire unless you plan.
• Since you can’t access your KiwiSaver balance before age 65 (with exceptions for ​ buying a home or if you face hardship), those wanting to avoid a retirement of limited choices need to prepare now with a 'Plan B'.
• Even if you voluntarily retire before 65, by law, you'll need to wait until you are 65 years old to access your KiwiSaver funds.
• Therefore, to fund your everyday expenses as an early retiree, you will likely need other forms of investments and savings.
• The earlier you start accumulating wealth, the earlier you can retire. 

What can I do right now to help me retire early? 

1. The best approach is to invest money outside of KiwiSaver that you can access before you turn 65 should you retire early. 
2. What you should invest in depends on the level of risk you're prepared to take, and how long before you plan to retire. You may want to talk to a financial advisor. 
3. Beyond KiwiSaver, index-tracking funds or managed funds with a proven history both offer the option to withdraw whenever you need (there's no age requirement), so you can spend your money before you turn 65.​

Get out of debt (otherwise, you'll spend your savings paying off the balance and its interest)

Any retiree will say the same thing - don’t retire with debt. If you do, it only makes it that much harder to afford a comfortable retirement. If you have consumer debt, pay it off as a priority.

Debt should be your focus as you approach retirement. Be proactive to pay it off aggressively - if you only make the minimum payments, you will be saddled with long-term debt. The more money you throw at paying off debt balances, the less money you can save for retirement. But doing so is a necessary evil to protect your finances in retirement.

What can I do right now to help me retire early? 

• List all the debts you have and pay them off in order of interest rates – from highest to lowest. The faster you pay off the most expensive debts, the less interest you'll pay, which will leave you with more money to invest for early retirement.
• Plenty of offers exist to help you with standard consumer debt - our list of the best balance transfer credit cards cover store cards, credit cards and cards like GEM Visa and Q Cards. A balance transfer card will protect you from 20%+ p.a. interest rates by allowing you to transfer expensive debt to 0% deals and pay it off during the interest-free period. This can be six months to two years, depending on the card offer. 
• Our view is that you'll never be able to retire early while you still have debt. This includes a mortgage; it's challenging to keep up with repayments when your income becomes fixed.
• Not having enough money is a significant ongoing problem pensioners face - dragging debt into retirement stretches your personal finances month after month.

Pay off your mortgage as fast as possible (the sooner you do, the sooner you'll have options)

• If you have a mortgage, create a plan to pay it off early. Our dedicated guide explains how to do it.
• Mortgage repayments are typically the most expensive part of your monthly bills, and many retirees can't afford to service a mortgage when they hit 65 and leave work.
• This exposes retirees to the risk of having to get a reverse mortgage to settle the balance owed. If you have a reverse mortgage, it provides cash upfront but it does have consequences.
• For example, your options for future plans can be limited when you need to sell your home. The bank may have owned 10% of the home when you took out the reverse mortgage, but with the above-market interest rates charged, this portion can grow significantly. If house prices have increased then there is less of an issue as, relatively speaking, you may not be any worse off. But if the prices are flat, the proceeds of the house sale may not be enough to fund assisted-living care or a retirement unit.
• Whatever the outcome, reverse mortgages remain controversial and proper consideration upfront is the best approach.

What can I do right now to help me retire early? 

• Paying off your mortgage early frees up a large amount of money each month, which you can allocate to investments to boost your retirement lifestyle.  
• While you still have to pay council rates and insurance when you own a home without a mortgage, the total expenditures are much lower when you're mortgage-free. 
• ​Our guide to paying off your mortgage faster has ten proven ways that help relieve the debt burden. However, you'll need to be mindful of any early repayment penalties.

Take advantage of term deposits

You aren’t going to become a millionaire on term deposits, but they are a non-risky investment when you need to store cash and don't want to invest it in funds or shares. Term deposits protect your retirement savings so you can draw down the money you need progressively during your golden years.

What can I do right now to help me retire early? ​

• Many sensible New Zealanders approaching retirement choose to keep a portion of their funds in term deposits for the peace of mind they provide.
• Term deposits act as an emergency fund, so you won't have to take on debt if something unplanned needs to be paid for.
• Having a cash reserve gives you peace of mind that you’ll have money to fall back on when you retire.
• Our guide to the best term deposits and savings accounts details the best offers currently available.

Consider investing in managed funds

Warning: Your capital (original investment) is at risk if you invest in managed funds. 

If you want to retire early, you may need to invest in something more aggressive right now to build up a nest egg. Your income itself won’t be enough, and the limited interest earnings made on term deposits won't provide much of a lifestyle unless you have millions of dollars in the bank.
 
Managed funds offer the aggressiveness you need along with the flexibility to withdraw funds whenever you need. There are no penalties, and you can take more risk while reaping the rewards of the more aggressive investment. 

What can I do right now to help me retire early? 

• Managed funds are popular, and it's never too early to start investing. Our guides to managed funds, index funds and ETFs vs index funds offer more information.
• Selecting a fund (or funds) that delivers long-term growth is not guaranteed, and past performance does not indicate future profits.

What about KiwiSaver? Should I put my money into managed funds (or another investment) instead?

• While KiwiSaver funds can't be accessed before the age of 65, it's important not to neglect it. Having a growing balance will support your retirement needs when the time comes.
• A popular tactic is to keep up your KiwiSaver contributions year after year. If you do, you will receive the government contribution of $521 annually. Over 20 years, this is over $10,000 in free money from the government. It also has the benefit of seeing the returns compound.
• You can then withdraw or redeem a portion of the balance once you hit 65 and can take advantage of your retirement funds once you become that age.

Cut down your spending to save, conserve money and form good habits for the long-term

• It’s essential to cut your spending drastically if you want to retire early. Retirement doesn't usually involve all the incidental expenses you incur when working, so it's a good idea to focus on necessities more than luxuries.
• Cutting down on what you're used to may seem drastic at first, but when you realize you’re saving the money for your future so you can stop working earlier, it makes it a lot easier.

Drawing on the 'Financial Independence, Retire Early' (FIRE) movement, there are two retirement concepts which best explain the choice for retirees:

1. 'FatFire' is when you don’t cut your expenses and save enough to retire anyway. This is usually realistic for those earning high salaries, are generally consistent with their expenses, are mortgage-free and have investments. If this is you, little change is needed, and you can look forward to a flexible lifestyle.
2. 'LeanFire' occurs when you don't have large investments and, while preparing to finish work, cut your expenses down to the bare minimum. This then lets you save enough to retire earlier, knowing that you will be spending a fixed amount.

 
What can I do right now to help me retire early? ​

• The best starting point, whether you plan to be FatFire or LeanFire, is to make a genuine effort to cut back on expenses so that you have an idea of how much you will spend when you retire. Our ways to save guide has some easy-win ideas to help start the journey.​

Live off your investment earnings by diversifying your assets (so you'll always have reliable cashflow)

As you prepare to retire early, you need money for the daily cost of living today. If you invest most or all of your income, how are you supposed to cover your daily expenses? You should consider investing in assets that provide you with regular income.

These popular investments pay income regularly:

1. Rental property - if there isn't a mortgage, investment property fully tenanted can offer reliable streams of cash
2. Dividends from shares in a company - while interest rates remain low, company dividends can be as high as 5%, 6% or even 8% p.a. However, if the share price of the company drops, you will lose some of your original investment if you sell.

What can I do right now to help me retire early? ​
If you invest early and aggressively, you can live off the earnings made on your investments. This allows you to keep investing most of your income, growing it for retirement while maintaining your lifestyle today.

Be aware that early retirement has its pros and cons - staying at work for longer will boost your retirement savings balance

Many people dream about retirement, thinking that it’s one big vacation that you live. The reality is that retirement is, in no uncertain terms, life without a job. For some people, that’s not as pleasant as it sounds. While retirees will usually find enjoyment from freedom, one day quickly rolls into the next. If you don’t have anything to truly get up for each morning, it can become depressing.

What can I do right now to help me retire early? 

• Have a plan about how you will spend your time - is there anything specific you want to do now, or can you wait until you turn 65?
• The additional years of income generation will boost your retirement lifestyle.
• It's tough to get back into work, both physically and mentally, once you retire. Be sure that early retirement is something that will completely satisfy you.

Avoid getting divorced (unless it's absolutely essential)

The harsh reality in all corners of New Zealand is that many people in their 50s and 60s who want to divorce can't afford to. Divorce is incredibly expensive at any age, but the older you are, the fewer opportunities you have to rebuild your wealth and personal finance.

Why is divorce a problem for retiring early?

• Divorce ultimately means that each person needs to live in their own home. In times of record-high New Zealand house prices, selling the family home and buying two other properties is near-impossible without a mortgage or severe implications on your lifestyle.
• Buying a new property may involve applying for a new mortgage; with the clock ticking until retirement, paying down a mortgage will need to be a top priority. This may leave you without cash savings and move the early retirement goalpost further away.

What can I do right now to help me retire early? ​

1. If you want to retire early but have a troubled marriage, the best way forward is to save the marriage. Planning for early retirement and Divorce don't usually go together, unless there is a large estate involved.
2. If you're going to divorce, consider doing it as soon as possible rather than waiting until you're both less able to earn money. It's not easy; it will be tough, but it can be done if both parties keep the process amicable.

Avoid investment "workshops", "coaching" and other big promise/big risk schemes

• Many people in their 50's and 60's come to realise they don't have enough money to retire.
• Under a sense of urgency, they begin thinking big (and quick) and think they will make "big wins" with ill-conceived property development, an FX trading scheme or speculative business purchase. 
• It's arguable many of them ruin their retirement in the process, because they lose the small retirement savings that they previously had.
• There are many snake oil salespeople out there promising riches - be very careful. 

What can I do right now to help me retire early? ​
Avoid promotions and 'courses' that offer riches with 'coaching' and 'workshops'. The reality is that, in many cases, the only people profiting are the people promoting the scheme. There have been too many trading scams which can severely affect the retirement savings of everyday New Zealanders who fall victims to them.

How to Retire Early - Frequently Asked Questions

If you're planning to retire early, our frequently asked questions can help you get more clarity on the topic and consider all aspects before making a decision.

What is the ideal age to aim for when it comes to retiring early?

There is no ideal age - some people sell businesses at 40 or 50 and decide to retire. However, most people retiring early will usually wait until they're in their late 50s or early 60s.

How much money do I need if I want to retire early?

This depends on how much you plan to spend per year. If you've saved $500,000 and are comfortable with spending $4,000 a month, you should be comfortable for around ten years. Many early retirees use their superannuation payments to supplement their income, which extends how long they can enjoy a comfortable retirement.

​The reality is that how comfortable your retirement will be depends on how you plan, what you spend and how much you have saved. $100,000 to one couple may last ten years, whereas for another it may be spent in one year.

What happens if I run out of money?

If you're over 65, you'll have access to regular superannuation payments and any KiwiSaver balance you've accumulated.  Beyond that, there's little opportunity to earn income once you've retired as your employment opportunities generally tail off. If this is a risk, the best approach is to stay in paid employment until you're financially comfortable to retire.

Other income-generating options:

1. Lifetime Retirement Income - this company offers an annuity, which is a guaranteed fixed income paid from a set amount of cash savings. This can appeal to anyone who wants the certainty of a regular income. However, as our review details, there are fees involved. 
2. Rent out a room - while it's likely to be somewhat inconvenient, it can help bring weekly cashflow. 
3. Downsize your home - if you're likely to move into a small home later on, doing it upfront can lead to a significant cash injection. However, the behaviour of the New Zealand property market means once you sell, it's almost impossible to buy back in the location and size you have been accustomed to. For example, if you sell your home for $1,000,000 in Auckland and buy a home in Orewa for $800,000, it will be near-impossible to buy back into Auckland later on with the equity you have in your new home.

How to Retire Early - Our View:

• ​Retiring early may have a different meaning to you than you initially thought. Retirement doesn’t mean living a carefree existence for the rest of your life.
• For most people, retiring early involves living a financially secure life that’s free from debt and enables you to avoid working the traditional 9 to 5 job.
• Retiring early is most often about living a new dream, which may or may not include working at another job or owning your own business. It means being financially free and doing what you want to do (within reason). ​
• While not a financial decision, keeping healthy throughout your life (regular physical exercise (walks, runs, swimming etc), low-sugar foods, mental exercise etc.) will help you in later life and make retirement more enjoyable. 

Our Checklist: The BEST situation in which to be able to retire early is:

1. Own your home (with no mortgage owing)
2. Have no personal debts (credit cards, long-term finance etc.)
3. Have at least $250,000 saved (it may sound impossible, but it will make a big difference to your retirement). 
4. Consider taking a paid part-time position that you enjoy, or some unpaid volunteer work to keep active and engaged. 
5. Be comfortable spending your savings, knowing that you will no longer be able to (significantly) contribute to your investments. 

Reverse Mortgages - What You Need to Know

We've included this summary on reverse mortgages to help explain the pros and cons of this high-interest finance product that is targeted at those planning to retire.

In a nutshell:

• Reverse mortgages are also known as retirement equity release loans. They provide cash-up-front, with no repayment needed until you sell your home, move to a rest home or pass away.
• Reverse mortgages are designed to help with a common problem: you retire but don't have any money. You may also have a mortgage balance still owing. Furthermore, the New Zealand superannuation and personal savings payments aren't sufficient to cover the purchases you need and want to make.
• Reverse mortgages are pitched to retirees as 'zero-risk loans' that offer 'a better retirement' and 'guarantee you can unlock equity in your home while not having to sell it'. However, there are downsides, and the long-term destruction in wealth can be significant. This is primarily due to the above-market interest rate being charged.
• Generally, applicants of reverse mortgages use the money for big cash items such as paying off a mortgage, home repairs, a new car, an overseas trip to see family and/or debt consolidation.
• On paper, reverse mortgages sound attractive, but they are expensive debt; get it wrong and you can be caught out severely. Annual interest charges, usually between 6% and 8%, compound daily. It really is like taking out a loan and not paying it back for years and years.
• If you change your mind later on and want to repay the reverse mortgage loan, as long as the interest rate is floating, the fees for doing this should be minimal or zero. Heartland Bank, for example, only offers a floating rate for reverse mortgages, and there are no penalties for early repayment.  

How expensive are reverse mortgages?
Generally, if you borrow $100,000 at age 65, you will owe around $330,000 by the time you are 80. This can cause financial hardship if the value of the property has not increased at a rate to offset the debt.

Want to know more?

• Our dedicated guide to reverse mortgages extensively outlines the pros, cons and what you need to know. 

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Related guides:

• Retirement Calculator
• Retirement in a Nutshell
• ​20 Ways to Save Money
• KiwiSaver Overview
• Our Favourite KiwiSaver Funds