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 26 February 2022
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:
FIRE-focused guides: Our guide to Financial Independence, Retire Early (FIRE) provide specialist insights - FIRE Explained and The Five Different Types of FIRE Plans are good starting points.
- 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
FIRE-focused guides: Our guide to Financial Independence, Retire Early (FIRE) provide specialist insights - FIRE Explained and The Five Different Types of FIRE Plans are good starting points.
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.
Important: Per our Retirement in a Nutshell guide, we believe that the BEST situation to be in at 64 is the following:
- Own your home (with no mortgage owing)
- Have no personal debts (credit cards, long-term finance etc.)
- Have at least $100,000 saved (it may sound impossible, but it will make a big difference to your retirement)
More information: Visit New Zealand's Financial Freedom Authority - The Happy Saver. Ruth is a proven expert and has helped hundreds of New Zealanders on their journey to financial independence. Ruth also offers a phone-a-friend service which we believe is a helpful starting point to mapping out the financial situation you want to achieve. MoneyHub has no financial relationship with The Happy Saver, and mention it given its popularity, relevance, usefulness and trust.
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)
What can I do right now to help me retire early?
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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?
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Pay off your mortgage as fast as possible (the sooner you do, the sooner you'll have options)
What can I do right now to help me retire early?
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Take advantage of term depositsYou 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?
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Consider investing in managed fundsWarning: 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?
What about KiwiSaver? Should I put my money into managed funds (or another investment) instead?
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Cut down your spending to save, conserve money and form good habits for the long-term
Drawing on the 'Financial Independence, Retire Early' (FIRE) movement, there are two retirement concepts which best explain the choice for retirees:
What can I do right now to help me retire early?
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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:
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 balanceMany 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?
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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?
What can I do right now to help me retire early?
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Avoid investment "workshops", "coaching" and other big promise/big risk schemes
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.
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:
Other income-generating options:
- Rent out a room - while it's likely to be somewhat inconvenient, it can help bring weekly cashflow.
- 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:
- Own your home (with no mortgage owing)
- Have no personal debts (credit cards, long-term finance etc.)
- Have at least $250,000 saved (it may sound impossible, but it will make a big difference to your retirement).
- Consider taking a paid part-time position that you enjoy, or some unpaid volunteer work to keep active and engaged.
- 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:
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?
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.
Financial Independence Guides:
Related Resources:
- Retirement in a Nutshell
- FIRE Explained
- The Four Percent Rule
- Five Types of FIRE Plans
- Getting FIRE’d in New Zealand
- FIRE and NZ Real Estate
- Achieving Financial Independence, Faster
Related Resources: