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How To Retire Early… And Should You?

How can you get enough money to kiss your job goodbye? Brenda Ward asks the experts, but finds that retirement might not be quite what you hoped for.

20 October 2021

It’s many people’s dream. You can give up work early and spend the rest of your life doing what you like.

You’d travel, play golf, read books, and spend more time with your kids. Life would be like one long, 30-year holiday.

There’s a whole movement devoted to this life plan. It’s called FIRE, which stands for Financial Independence, Retire Early.

FIRE extremists live frugally until they can hand in their resignation. Then they downsize their lives to spend less without working.

They invest their savings and spend the money they make from interest or rent.

So, how do you make the numbers work?

How to retire early

The guru of FIRE is 44-year-old Canadian software engineer Peter Adeney, who blogs as Mr Money Mustache.

Adeney was 30 when he and his wife retired. They had been saving most of their salaries, invested the money in share market index funds and lived off the returns.

He says your time to reach retirement depends on how much you can save, as a percentage of your take-home pay.

“When you invest those savings, your money can start earning money all by itself. Then the earnings on those earnings can start earning their own money.”

When the income from investments covers your living costs, leaving enough each year to keep up with inflation, you could be ready to retire.

To find out how long it’ll take you to retire, check the tool on savings extremists’ website Networthify. For tips, there’s a Kiwi Facebook group to inspire local converts, ‘Kiwi Mustachians’.

Can Kiwis do it?

Financial adviser and author of 20 Good Summers, Martin Hawes, says only a few Kiwis are able to retire early.

They tend to be owners selling businesses, professionals, farmers, some top real estate agents, and residential property investors, who are really running a business too.

Hawes doesn’t doubt the FIRE numbers work. But he says it’s not practical for most of us, because it takes a lot of capital, sacrifices, single-mindedness, and focus.

He says the key to retiring at any age is to build a portfolio of investments and use returns for your living expenses.

“Early retirees won’t get NZ Super until they’re 65, so somebody retiring in their 50s has to have quite a lot more money than somebody retiring at 65.

“Also, it’s for longer, so if you’re spending capital as well as income, you can’t draw as much. You’ve got to have a lot more capital.”

Should you retire early?

But is early retirement the nirvana we all think it is? Canadian psychologist and financial expert Barry LaValley has made a lifetime study of retirement, and says retiring early’s a bad idea.

The number one issue when people retire is that they’re not mentally prepared for 30 to 40 years after work – and that’s true whether you retire at 65 or at 40, he says.

“People are really not clear on what retirement is. They go into it thinking it’s a 30 year-long weekend, and that every day is Saturday. It’s not true.

“Retirement is just life. It’s life with one exception, work.

“People aren’t preparing for retirement. People are preparing for bucket lists, or perpetual travel, or perpetual golf. They think it’s just one big vacation.”

When they discover it’s not, it can be a shock, says LaValley.

From fantasy to disenchantment

LaValley says: “They run into problems with identity, understanding who they are, and coming to grips with the fact that they’re not where they used to be.

“There are things that used to come from work that now have to come from within.”

They also face a new dynamic with their spouse or partner.

LaValley sees people start with a fantasy of their retirement dream, followed by a honeymoon period when they travel, play golf, and do all the things they thought they wanted to do.

After about three years, says LaValley, life becomes routine and, four to six years after stopping work, many become disenchanted. Depression is common as people adjust to health issues and many face a ‘grey divorce’ or a partner’s death.

Don’t retire early

LaValley says there are several reasons not to retire early.

Your health. Older people who work tend to be a lot healthier than people who retire. Research in Australia suggests that if you retire and have a life of leisure, you have 25 per cent more likelihood of a cardiovascular event, 30 per cent more chance of diabetes and a 33 per cent higher likelihood of dementia.

Says LaValley: “We believe that leisure is good for us, but actually, leisure is bad for us. We’re not designed to lie around and do nothing. That’s an abnormal thing.”

Relationships change. “The highest demographic for divorce is the 55 to 64-year-old cohort in Australia. You’re together 24/7.” Of particular risk are couples who become co-dependent on each other.

There’s no break. “Leisure is meant to be a break from work. But if you don’t work, what’s your break?”

How to retire well

LaValley says there are four top factors that can help you transition successfully.

1. Optimists do better than pessimists.

2. Successful retirees tend to be self-directed.

3. They create ‘positive stress’, doing things that make them happy, and do fewer things that create negative stress.

5. They have a life independent of their partner.

So, money isn’t one of the factors, then?

No, says LaValley.

He says there’s no link between money and happiness. In fact, many retirees say the biggest factor for happiness is good health.

Published 29 February 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.


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