How much money do you need to retire early?

When holidays end too soon, long weekends don’t feel long enough, and Monday morning feels like it arrives the moment you wake up on a Saturday, there’s nothing quite like dreaming about retirement and the endless days off it brings.

It’s no wonder a third of us want to retire before age 65.

It’s a global movement called FIRE – Financial Independence, Retire Early. It essentially means that you can live without relying on work, or in other words, have enough in the bank that you can enjoy life without needing a steady income.

Some lucky few might enjoy a lotto win that sets them up for life, but for most of us, that level of financial independence takes some serious hard work and planning.

How you can retire early

There are a few strategies young people commonly use when planning to retire early.

The first is to get out of debt. Between student loans, mortgages, credit cards , and car financing, this is vastly easier said than done, but it is a key factor in retiring early. After all, how are you supposed to nap on the beach on a weekday afternoon if you’re still paying off your degree?

Because with great debt often comes great interest responsibility, so if you can bring your debt down to zero, you can stop paying interest as well.

Once your debt has been taken care of, that money can go straight into the retirement piggy bank instead. Here you may be able to work with a financial advisor to find ways to earn interest as well.

Of course, paying off debt and setting aside savings goes hand in hand with cutting down on spending. We’ll save you the avocado-and-toast spiel, but suggest you start a journal to see where your money goes each month so you can find non-toast related areas to cut down in.

Factors that can influence whether you’re ready for retirement

It’s not just about what you have in your account that will determine how much you need to retire early – it’s also about how you’re planning to live in retirement.

That begins with your lifestyle. If your Monday morning daydreams about retirement are all about travelling to the best cities around the world, enjoying restaurants, and generally living the high life, then you may need to spend a few more Monday mornings getting up and going to work. If your dream lifestyle is a relaxed one of settling down in a modest home, taking the odd weekend away around the country, and spoiling the grandkids with noisy Christmas presents, you might not have as many difficult Monday mornings ahead of you.

It also depends on where you want to retire. You’d have to have been living under Stewart Island not to know that Auckland house prices are through the roof, but if you’re looking to live somewhere with a less heated property market, you won’t need to save quite so much.

How much do you really need to retire?

Every year, the Massey University Fin-Ed Centre Annual Retirement Expenditure Guidelines offer a useful guide for how much you can expect to spend in retirement, depending on where you live (metro vs provincial), what kind of budget you want (no frills vs choices), and whether you’re in a single or two-person household.

In its most recent release (June 2021), the guide suggests you will need enough for spending between $604.92 per week (for a single person household in a provincial region living on a no frills budget) and $1,470.26 per week (for a two-person household living in a metro area on a choices budget).

One-Person Households Two-Person Households
Weekly NZ Super Rates After Tax $436.94 $672.22
Total Weekly Expenditure Metro Provincial Metro Provincial
No Frills Budget $726.19 $604.92 $864.94 $746.81
Choices Budget $1,028.89 $1,116.23 $1,470.26 $1,176.14

You can use this grid to make a rough estimate of how much you’ll need to retire early or take a shortcut and use the Retirement Calculator. This calculator uses the annual expenditure guidelines to help determine savings goals ahead of retiring.

The report also recommends being proactive about retirement preparation, including budgeting, looking after your health needs, planning activities, and setting up a will and life insurance.

OneChoice is the easy choice for at least one of those things – organising your life insurance. Get the ball rolling with a quick and easy life insurance quote today.

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