It wasn’t so long ago that most people had an expectation of retiring completely from the work force the day they became eligible for NZ Superannuation. These days, more people are choosing to reduce their hours rather than stop working altogether, sometimes starting this process well before official retirement age. While many dream of retiring completely at an early age, only a few are able to make this a reality.
Retiring early requires a considerable sum of money for several reasons:
- Your desired level of retirement income will have to be produced entirely from your own financial resources until you are eligible for NZ Superannuation.
- The time you will spend in retirement will be longer than for those who don’t retire early, thus exposing you even more to the ravages of inflation and taxation once you have stopped earning
- A longer retirement may increase the frequency of having to spend money on replacing your car, maintaining your house and dealing with health issues while you are not earning.
- The time you spend in the active stage of retirement will be much longer, and you may need more money to pay for the things you enjoy such as travel, sports and entertainment
Not only will you need more money for your early retirement, but you will have fewer years to accumulate it. This implies the need to take on greater financial risk in order to get a higher return. Of those who succeed in retiring early, many have invested in businesses, shares or property to accumulate the wealth they need. Early retirement is possible; it just requires advance planning of the lump sums and regular income you will need during retirement, calculation of how much wealth you will need at retirement, and a strategy for accumulating it.