How to retire debt free with (financial) peace of mind

Posted November 2019

how to retire debt free

Ensuring your golden years really are golden...

Ideally, we’d all love to retire tomorrow.

But most Kiwis are expecting to delay retirement well past 65.

Relying on KiwiSaver or allocated pensions as a primary source of income may no longer be enough. Rising living costs and higher levels of personal debt are contributing to these increased feelings of financial insecurity.

In fact, more than 1 in 3 New Zealanders say they are struggling to get by.

To reduce your risk of entering retirement with debts, you need to start preparing early. Today we’re sharing a list of simple tips and tricks that will help you reduce the debts that may otherwise dampen your golden years.

These include:

  • Investing early
  • Downsizing and refinancing
  • Setting a serious budget

Let’s get started…

1. Invest early

save early

If (or when) you choose to invest, it helps to diversify your portfolio. Shares, property, fixed-term deposits, and other investment options are a great way to ensure you aren’t putting all of your eggs in one basket.

Savings accounts that offer compounding interest, for example, are one such option.

Compounding interest is the addition of interest to the sum on investments or savings. Think of it as interest on your interest. The longer your money is invested, the more interest is added, the greater the effects of compounding interest.

2. Downsize and refinance

Downsizing the family home once the kids leave the nest is a great way to re-purpose some cash which could be refinanced into savings, investments, or used to pay off debt.

Building equity on a home also means it will be easier for you to buy an investment property later down the track as an additional source of income during retirement.

3. Set out a serious budget


Saving for retirement is a marathon, not a sprint.

Start by calculating how much you think you will need (this will vary depending on personal circumstances). Once you have determined how much you’ll need, you can sit down and start creating a budget.

Using the spreadsheet above, you can set out your income, expenses, spending and savings, and keep track of exactly where your money is going each week. It’s a great way to keep yourself accountable and ensure you put money aside for retirement.

4. Pay non-mortgage debts first

Mortgages often have the lowest interest rates, so it pays to start tackling other high-interest debts such as personal loans and credit cards first.

Consolidating loans is a great place to start, combining all of your debts into one easy to manage, monthly repayment. Often with a much lower interest rate. Budgeting a portion of your income to start paying off your debts as early as you can ensures you enter retirement without the added burden.

5. Keep savings separate from an emergency fund

emergency fund savings

A savings account and an emergency fund are two very different things.

Savings accounts are for long term goals such as buying a first home or saving for retirement, and should continue to grow throughout your life.

Emergency funds, however, are designed to keep you afloat during unforeseen circumstances such as injury or job loss, and ideally contains 3-6 months worth of income.

Keeping these separate will mean you can deal with any financial emergencies without having to dip into savings or take on more debt for quick, easy cash.

6. Do the hard yards now

Spending more time at work isn’t everyone’s idea of a great time.

That said, putting in some extra hours or chasing up opportunities when you’re younger could benefit you later in life. You don’t have to sacrifice all your free time, but taking up a side hustle can boost your savings or Kiwisaver so you can enjoy a comfortable retirement.

7. Resist life’s temptations


Getting out of debt can be difficult…

...the tricky part is staying out of it.

The goal of retiring debt-free is to ensure it stays that way, so budgeting doesn’t stop once the bills are paid off. Instead, reallocate that cash into savings, investments, or Kiwisaver to increase contributions.

Today is the best day to start preparing for retirement

Retirement may seem a long way off, but putting off saving for another 10 or 20 years can significantly affect your standard of living once you finally call it a day. By preparing earlier than you think you should, you’ll give yourself the best shot at golden years that are golden.

Related Articles

The article published on this page is not financial advice and should not be relied upon as such. The opinions published in this article is not those of Unity Credit Union.