How To Retire Early

Early retirement is an enticing proposition for many Kiwis – who wouldn’t want to stop working earlier and enjoy life on their own terms? With the right attitude, the right planning, and the right budget, it’s possible for nearly anyone to retire early. Here’s what you need to consider.

Lara Maloney

Lara Maloney

21 April 2022

What is considered early retirement?

There is no mandated retirement age in New Zealand. You can continue to work for as long, or as little, as you like. However, most people aim to retire at 65, as this is when you gain access to the New Zealand superannuation payments and can begin making retirement withdrawals from your KiwiSaver. Any earlier than this would be considered ‘early’ retirement.

Many people either choose or need to continue working past 65. In fact, New Zealand has one of the highest proportions of people aged over 65 still in employment, with almost 25% of those at ‘retirement age’ still in paid employment.

By 2038, indications are that about 1 in 3 of all those Kiwis aged 65 plus will still have a job, either for personal, social or financial reasons.

Despite this, a large number of New Zealanders are bucking the trend and choosing to retire early with many setting the goal of retiring at 55 or earlier, using their savings, investments and other methods of income to replace their salaries or wages and supplement their super.

Is retiring early worth it?

Retiring early requires a huge investment of time, money and willpower, and demands significant financial planning.

So why do so many people choose to retire early? And is it right for you?

Pros of early retirement

More time that’s truly yours

Anyone who has worked full-time for decades will know how important time is. Time with family, time with friends, time with grandchildren – as you get older, time becomes more and more precious as you increase the number of people you want to be able to spend it with.

Early retirement gives you that time, providing you with more opportunities to do the things you love with the people you love and to experience more of life outside of work. 

A more active retirement

When thinking of retirement, many people will picture an active retirement, brimming with excitement and adventure. Walking the Great Walks, biking the Great Trails, strolling along the beach, gardening, travel – wouldn’t it be better to do those things while you’re younger and more physically able?

For others, the need to retire early might be more immediate. A recent medical test or doctor’s appointment might have them questioning their overall wellness, and early retirement would give them the chance to plan healthier meals, take on more exercise, and generally improve their wellbeing.

No need to work in a job you dislike

For better or worse, a lot of people stay in a job that they either don’t find enjoyable anymore or even actively dislike, simply because they need the income. Others might like the actual work, but the general workplace stressors are putting increasing pressure on their mental health and affecting their lives negatively outside of work. 

For these people, early retirement offers a way out, providing a chance to escape a job that isn’t working for them any more.

Work at something you love

Don’t be fooled: retiring early doesn’t mean retiring completely if you don’t want it to. Many people choose to cut down their hours to part time, continuing to work after 65, but with fewer hours – sometimes in their existing job, or possibly in a totally new and interesting field. They make their jobs part of their retirement.

This may seem contrary to the concept of early retirement, but in reality, work provides lots of social and mental stimulation. Working or volunteering provides opportunities to forge new social connections and maintain existing ones.

Cons of early retirement

The need for a larger nest egg

If you retire early, you’ll likely need to access your retirement savings or nest egg earlier than you intended. You won’t be able to start drawing down on your KiwiSaver until you’re at least 65 (with some exceptions), so you must have a plan for managing these savings and ensuring they’ll stretch for the entirety of your retirement – including the extra years from retiring early.

Here’s a pro-tip: ensure you have a diverse range of retirement savings and investments to access. This might include cash, shares, term deposits, and so on. Diversity ensures that your money is working as hard as it can for you, while still being relatively stable – absolutely imperative for a successful early retirement. And don’t forget your emergency savings either. You should always have a chunk of change immediately available for unplanned medical costs or other urgent, unpredictable events.

Early retirement might not be for you

Everyone is unique and has unique needs for their lifestyle. Sometimes, while early retirement may look great on paper, it doesn’t actually suit everyone. 

For some people, early retirement offers an escape from stress, while for others, it actually creates more of it. Early retirement can result in a drop in social connectedness, physical activity, and mental challenge, all of which are integral to good health in later years – not to mention the possible additional financial strain should your plan not work out quite how you intended.

Thankfully, early retirement isn’t permanent. Someone suffering from any additional stresses during early retirement can simply return to work, should they feel the need.

Extra care is needed around money management

If you retire early, either completely or by going semi-retired with cut hours, you’ll need even more care over your dollars than you would while you’re working. Without the right amount of planning and budgeting diligence, an early retirement can put too much strain on your finances and result in cutting your retirement early and returning to work – possibly even after you reach the ‘typical’ retirement age.

This is why so many people choose to work with a financial planner for their early retirement plan, to ensure they’ve considered all the potential costs and risks associated with early retirement. The right plan makes all the difference.

5 steps to early retirement

1. Make a plan 

It’s never too early to put together a plan for your retirement, early or otherwise. Without a plan, it’s impossible to know when, if and how you’ll be able to stop working. 

In your plan, you’ll need to consider:

  • When you ideally want to retire
  • What your regular expenses are and will be
  • What kind of lifestyle you want to have in early retirement
  • How you’ll fund that lifestyle through investments, savings, income, KiwiSaver and superannuation.

And that’s just for starters! Early retirement is a big task so we recommend making a plan with a qualified financial advisor to make sure you cover everything.

2. Pay down your debt

Debt makes a massive difference to your retirement. Mortgages, personal loans, car loans – start paying them down or, at least, make a plan for how you’re going to pay them off by the time you retire. If you’re still making payments by the date you want to retire, early or otherwise, you’ll have a significant burden that will impact the kind of early retirement you’ll be able to have.

Got a few debts you want to simplify and reduce? Consider debt consolidation as an option to make your life – and your retirement plan – easier.

3. Take charge of your investments

If you’ve ever asked yourself what the best way to ensure early retirement is, the answer is simple: good investments.

The right investment portfolio will get you to your desired retirement income in your desired time frame by making sure you’re in the right asset class suited to your risk profile. Ultimately, every sound investment portfolio will ensure you have the right mix of savings, term deposits, property, shares and other investments to have cash on hand when you need it, and generate income even after you stop working.

This is probably the most important part of successful early retirement: investing well and early is the biggest differentiator between people who can retire early and people who may not be able to retire at all. But what makes a good investment? This is where a qualified financial adviser is worth their weight in gold.

4. Trim the fat (but keep the flavour)

Early retirement for most people means cutting down on luxuries and focusing instead on necessities. 

Our philosophy at MyFuture is that it’s all very well to create wealth, but you need to enjoy your life along the way – which means not scrimping and saving, but being able to continue enjoying all those luxuries! But how do you have your cake and eat it too?

Of course, trimming the fat on your budget is a smart move. We find clients naturally start making more intelligent financial decisions though around their day to day spending as a result of having a financial plan in place and having tangible, exciting goals they are working towards. 

Beyond that though, the most important elements are planning and time. Because whatever your financial goals are, with the right amount of planning and time, they’re possible!

5. Be flexible

If Covid has taught us anything, it’s that our plans for the future are susceptible to change – big change. If you want to retire early, you must be as flexible as possible to changing situations; personal or otherwise.

Revisit your plans regularly, see if you’re on track, and be ready to change things if they aren’t working out – whether that’s goals, your methods, or possibly even the age you retire at. Of course you need to take care not to be overly reactive to market changes. This is where a qualified financial adviser can assist you to stay on track and keep the big-picture, long-term plan in mind.