How Kiwis could retire comfortably decades before turning 65, All things property, under OneRoof

You don’t have to hate your job to be interested in early retirement. You just have to be someone who wants independence, a say in their life’s direction, and some of that holy grail “work/life balance”.

But how does it work? When you think about people retiring in their 30s, 40s, or 50s, it’s easy to think they must be millionaires.

Of course, you do need to sort out your finances to make it happen. But you don’t have to be earning millions.

The FIRE crowd, for Financial Independence Retire Early, have two simple rules.

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The first is to work out how much you need to spend in a year. Then times that by 25. That’s your goal number for savings and investments.

Then once you hit the goal, you can withdraw at four per cent a year. As different types of investments can earn between five and 15 per cent, this should be a safe strategy to keep you going for years to come.

Simple, sure, but a big goal nonetheless.

Scroll down to listen to Frances Cook's Cooking the Books podcast series

Happily, there are certain ways you can make this easier on yourself.

If you live a more frugal lifestyle, you get a double speed boost for reaching early retirement. One boost is that, of course, you’ll find it easier to save and invest money as you’re living below your means.

The second is that your life is now cheaper to run, and you need to save less money to hit 25x your annual expenses.

A paid off house doesn’t hurt. If you pay off the mortgage as fast as you can, you’ll have secured yourself a much lower cost of living once you’re done.

If you need extra income while on your journey to early retirement, or even once you’re there, you could consider renting a room to a boarder or on AirBnB.

The type of investment you put your goal money into is always a personal choice, but many chasing FIRE want growth investments that will earn them far more money than a term deposit.

Getting your money to work harder means we’re talking property or shares, particularly index funds.

So, that’s the theory. The interesting part to me is what happens once people achieve their goal of early retirement.

Many decide they don’t want to quit working entirely, after all. Once the chains are off, they decide they quite like being able to work.

But it’s work on their terms. Maybe it’s part-time, maybe it’s in an industry that’s fulfilling but doesn’t pay well.

For others, they fill their time with charity work, or raising a family.

As the FIRE movement gains steam and more people achieve the 25x milestone, it turns out that early retirement wasn’t their biggest goal after all. It was the financial independence, giving them the freedom to make their own choices.

It’s not a rejection of work. It’s an embrace of life.

- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial adviser, and all information is general in nature. For individual advice, see a financial adviser.

Listen to Cooking the Books podcasts below:

How money can be used to abuse

Housing is now a different game from the beginning of 2019

Should you buy a house with your friends?

How to make more money by being lazy

After an investment property? Time to think commercial

How to budget for a house deposit without depriving yourself

How first-home buyers can build their own unique solution

Could the rule of 100 turn around your fortunes?

Is NZ ready for first-home buyer landlords?

The tough talk you need to have when saving for a house

How to house hack your way to smaller household bills