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Are you on F.I.R.E?

Have you heard about the FIRE (financially independent retiring early) movement?

A small group young of Kiwi’s, led by Wellingtonian Nick Carr, are joining a global savings movement where members aim to live frugally and save 25 times their annual income to allow retirement decades early. Even though FIRE is not a new idea, the savings movement has been reignited through the world of social media, dedicated websites which offer members encouragement and savings tips, and even pod casts. However, many FIRE members say their focus isn’t necessarily on retiring early and taking themselves out of the workforce, rather, their focus is actually on gaining financial freedom.

Why 25 times your annual income?

The rule of 25 is used by FIRE members as this number represents a retirement portfolio which could provide a specified annual income and not deplete the capital base – so you don’t run out of money and go broke part way through retirement. For example, if you estimate your retirement spending to be $50,000 per year, under the FIRE rule, you would need to have saved $1,250,000 before retirement.

Methods of saving that NZ based members have implemented include; downsizing to smaller homes in less desirable suburbs, shopping around for better deals on utilities, only eating at home, ditching cars and opting for public transport, sharing homes with flatmates and using budgeting tools to track spending.

The FIRE movement may not be for everyone though and has drawn a few criticisms, such as the practicality of living so frugally as well as the emotional repercussions of constantly obsessing about your spending. However, the most common theme among members, which is usually echoed by many, is to reduce mortgage debt as quickly as possible as this represents a massive step towards financial freedom. Although high house prices across New Zealand can make the goal of eliminating mortgage debt before 50 seem like a distant dream, the right planning, sacrifices and debt management, can help you see that dream achieved a little faster.

No matter your age or the size of your retirement goal, many professionals agree that the best way to get started saving for retirement is just to simply look at your current income and expenditure. By reviewing your expenses you can discover areas where you may be able to cut back on unnecessary spending or better manage debt (both long term and short term) in order to make the most of potential savings.

If you have any questions about the FIRE movement or would like to speak with one of our qualified advisers about planning for your retirement, please do not hesitate to get in touch.

Do I have enough money to retire?

How much you need to have saved or invested for retirement is never straightforward. As you can imagine, the answer is unique to every person as it depends upon factors such as the lifestyle they wish to lead in retirement and what access they will have to investments to fund their desired lifestyle.

However, no matter your current position, it is best to tackle retirement planning sooner rather than later – leaving it until your mid 50’s may well be too late. Below we take a look at what the average Kiwi’s retirement may look like and the level of savings or investments they need to have established at retirement.

As previously mentioned, retirement lifestyle is the number one variable to consider. Do you want to be living in a freehold home or will you be happy renting? Do you want to travel regularly and spend money on entertainment?

Most retirement planning specialists work with a rule of thumb that you will need approximately 80% of your pre-retirement income if you want to maintain a comparative lifestyle. With the average income for a 60 to 64-year-old Kiwi being $60,736 per annum, you would need to approximately $48,589 per annum. Should you qualify for NZ Superannuation, this could provide you with roughly $20,800 or $16,016 per annum depending upon your living situation i.e. living alone on in a partnership.

As you can see in the above figures, NZ Superannuation will not be sufficient to maintain the average Kiwi retirees desired lifestyle from the age of 65. This will leave many having to consider working beyond the age of 65, reducing their retirement lifestyle expectations or relying on other means to generate an income. For many, there will be access to KiwiSaver upon retirement. However, additional savings or investments will be needed above and beyond KiwiSaver.

As an example of what the average Kiwi may need to have saved to retire, should you wish to generate an additional $40,000 per annum for 20 years from investments, which provide an average net return of 3%, you would need an asset base of approximately $600,000 (assuming you do not wish to have any capital remaining at the end of 20 years).

The above may be a daunting figure to comprehend which is why many do not deal with the issue head on. And what can be even more daunting is the fact that the costs of living tend to be steadily increasing – so in reality you may need access to more funds than what you initially budgeted. However, with a little help and discipline it is not unachievable. This is where Home Advantage can step in. Our team of advisers can coach you through the retirement planning process, explain your options and opportunities, and help you come up with a sustainable plan that works with your life as it is now.

We are extremely passionate about ensuring that Kiwis get to enjoy the lifestyle they want when they retire, because after all, isn’t that why you have worked so hard?

If you would like help with any aspect of retirement planning, please feel free to book a complimentary in-home consultation so that you can speak with one of our retirement planning experts.

Property Investment – How much deposit do I need to get started?

Purchasing an investment property is a popular investment choice for many Kiwis as it provides a greater feeling of security compared to intangible investments such as shares or bonds. Recent market trends have also allowed property investors to reap rewards from both capital growth and rental returns.

Aside from deciding whether or not purchasing an investment property would align with your risk profile, an important first step is to investigate if it is in fact a viable option for you.

As of January 2019, the Reserve Bank has set new loan to value ratio restrictions. The general rule is that if you are buying a residential investment property, you will now require at least a 30% deposit – higher than the 20% required for own occupied property, although there are some exceptions to this. However, the good news is that a deposit for an investment property can come from the equity you may already have in an existing property that you own, not just from savings.

For example, if your primary residence is valued at $750,000 and you have a mortgage of $400,000 remaining, you effectively have equity of $350,000.

Home Value: $750,000
Mortgage Value: $400,000
Equity Value: $350,000

Of this equity, 20% must remain held against your primary residence, being $150,000 (20% of $750,000), which leaves $200,000 to be used as leverage in the purchase of an investment property.

The above figures provide an insight into how you can effectively leverage equity from your existing home to build an investment portfolio. However, the best first step is to speak with a professional. A suitably qualified financial adviser will be able to give you an indication of your borrowing capacity and guide you through the planning, implementation and monitoring of your investment strategy. Furthermore, a professional will be able to point you in the right direction for expert tax advise so that you can maximize any potential returns or losses from your property. Some adviser companies, such as Home Advantage, even have access to professionally vetted investment properties which save you the hassle of having to find and research potential properties.

If you would like more information on property investment or would like a no-obligation consultation with a professional, please feel free to contact us.