Is Early Retirement Still a Possibility for 2022?

The prospect of early retirement is quite attractive, as it provides people opportunities to indulge in their hobbies or passions and pursue newfound interests. However, with the financial challenges last year and the uncertain economic climate, is early retirement still a possibility for 2022?

Of course, no one can bar you from retiring early. Although there’s no official retirement age in New Zealand, most people retire at age 65 — the time when most superannuation benefits kick in.

If you plan to retire this 2022, there are a few things you need to carefully go over, including your level of financial preparedness for retirement.

Key considerations when planning to retire early

Early retirement is a desirable goal, but it requires a lot of preparation. To ensure you’re ready for it, consider the following:

1. Mental preparedness

A lot of people have a mistaken notion that retirement is a period comprising a mix of excitement, adventure and idleness. While there’s nothing wrong with this optimism, retirement itself might prove different. Why?

If you have always been set on saving more and spending less, then you’ll probably afford a few luxuries when you retire. It’s highly likely you’ll have enough savings and investments to support the lifestyle you want.

But then, if you’ve been buying bigger houses or more expensive cars and going on holidays overseas just like everybody else, you might find yourself with a mortgage, credit card debt and other loans well into your 50s.

Therefore, you need to be committed to your early retirement goal and become a saver and investor, rather than a spender. And remember, the more luxuries you indulge in, the longer it will take for you to achieve the retirement fund you need to live a decent, stable life in retirement.

2. Financial stability

With the current New Zealand life expectancy pegged at 82.50 years, you need to do the math to ensure you have enough money to cover your daily living expenses, healthcare and medications, and afford a few luxuries should you decide to retire this 2022.

If you retire at age 62 and live well into your 80s, this means you’ll need to be ready to fund those 20 years-plus of life spent in retirement. Here, you’ll need to consider your super benefits and how much is needed to augment that amount to cover your monthly expenses for the duration of your retirement. If you have a pension plan, private health insurance and investments, then those will surely help.

Back in 2019, according to the Massey University Annual Retirement Expenditure Guidelines (usually embedded in KiwiSaver calculators), a retiring couple would need a $785,000 nest egg on top of their super if they want to live the good life (or the so-called ‘choices’ lifestyle) in a city. For couples opting for regional New Zealand, $492,000 would suffice.

However, in computing the amount you need for your retirement, it’s better to work with a financial advisor, planner or personal accountant. With their help, you can take into account inflation, investments, debts, discretionary spending and other factors that can affect your ability to fund your retirement starting this 2022.

3. Debts

Consider debt as your mortal enemy now. You need to ensure you have a clear debt repayment scheme in place so the moment you retire, you are already debt-free. In fact, the sooner debt goes away, the better for you since you’ll be able to focus on saving, saving and more saving.

Getting out of debt is crucial not only to save more money for retirement but also to reduce your expenses during retirement. This means you won’t need to worry about mortgage and other loan repayments as well as credit card debt when you retire.

With more savings, you can look towards generating more wealth by making sound investments. You’ll also be able to get additional insurance cover should you desire it.

4. Income

The rising popularity of remote work and the robust gig economy make it easier to increase your income. By augmenting your salary with other income streams, you’re helping yourself to save more money for your retirement, as well as building up an emergency fund and money for investment.

A supplemental income source can also remain useful after you retire from your primary job this year. With this additional income stream, you’ll remain productive whilst enjoying retirement. But to do this, you need to find a gig or side job that doesn’t feel like work. It should be something you like and gives you satisfaction — which is very important if you are to continue doing it even in retirement.

By opening yourself up to other income opportunities pre and post-retirement, you’ll also be avoiding the boredom and depression that a lot of retirees experience.

5. Health

Let’s say you are able to save more than enough money to maintain the lifestyle you want even with early retirement. You have insurance cover, a pension plan, savings and investments aside from your super.

However, to enjoy these financial perks, you need to be healthy, too, starting right now.

Therefore, in planning for early retirement, consider your health status. Are you a youthful 55-year-old living a healthy, active lifestyle? Or are you someone in their 50s with several debilitating medical conditions: cardiovascular problems, diabetes and so on?

When you’re in good health, you won’t need to worry about getting hospitalised frequently, becoming dependent on medication and living with chronic illnesses.

So whatever your health condition is now, it’s important to prioritise your health so you’ll have many more years ahead to enjoy the fruits of your labour.

Plan ahead for retirement

Do you think you're ready to retire this year? Are you debt-free and financially solvent?

Whether you’re looking to retire this 2022 or later, planning and saving for the future you want is essential.

At One Choice, we can help you prepare for retirement by offering insurance plans designed to help you meet your future needs.