More than one road to retirement nirvana
Martin Hawes explores the options for easing into retirement.
The ability to take some kind of early retirement is Nirvana. To have the resources to change what you do to live more and work less is the big dream for many.
There are people in mid-life who are burning to ring some changes. Often enough, people in their fifties and sixties are starting to feel jaded and just want to slow down.
Mostly, early retirement is only for the fortunate few. The whole idea of retirement is that you spend a life working and then (but only then) you can kick back and enjoy the spoils.
This model is quite linear and staged: stage one is work; stage two is retirement.
Under this model, retirement, especially early retirement with a good lifestyle, means having a lot of money. This precludes the great majority of people.
However, the conventional model of working and saving hard so that you can retire later is just one life pattern which we don’t have to follow. There are other options.
The first is an adult gap year. I wrote about this late last year and for some people a grown-up gap year may be a workable option.
The second option is to start working less but, at the same time, commit to working longer.
Financially, you can think of it like this: at age 60 you had thought that you would work until 65 and then stop. Instead of this, you decide to work half-time but commit to working until age 70.
The change means working half as hard but for twice as long: instead of five years of full-time work you have 10 years half-time.
Over that 10-year period (from age 60 to 70), you will still have roughly the same amount of work income as you would have had over five years.
However, although you will still spend the same amount of time working, life may be easier, with more time to do other stuff.
The two big problems to such a plan are, first, you have to be able to live on half of your income. That would be possible for some couples but could be harder for single people.
You need to be able to live on your work income because you do not want to touch your savings or your KiwiSaver – you want them to grow.
Ideally, you would continue to add to savings but even without contributions, the investment returns should mean more savings when you stop work completely.
Second is the risk of being forced to stop work by poor health or redundancy. Being out of work could really blow the whole plan and lead to some tough years.
Nevertheless, nothing much happens without cost or risk. Going into an early semiretirement could be a great prize and for some, the price and risk will be well worthwhile.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. Martin is an Authorised Financial Adviser and a Disclosure Statements is available from him on request and free of charge