How to take control of your retirement

Get dreaming
Setting goals is essential to getting ahead. Is your dream to be a millionaire at 40? Finish full time work at 50? Or own a retirement bach at Whangamata when you turn 60? Many of us have ‘dreams’ rather than goals. You need to turn your dream into a goal by defining it precisely – what will your life look like, and when will it look like that?

Ask yourself:
· When do you want to retire?
· Do you want to continue working part time?
· Will you own your own home or rent?
· Where will you live?
· Will your family live close by?
· Will you travel overseas? If so, how often? (e.g. each year, once every five years)
· Do you intend leaving any inheritance to your family or will you spend all of your money before you die?
· Will your life be one of luxury or will you be content living simply?
· How will you earn your income?
· How much will NZ Super provide?
· What assets will you own?
· Will you have a partner? If so, will they be financially dependent on you or you on them?

Answering these questions will help you work out when you can realistically afford to stop full time work if you want to. They will also help you work out how much you need to retire.

Work out how much you need
How much you need depends on the lifestyle you want, whether you’ll continue working part time and if you will have other forms of income such as rent or board. To work out how much you’ll need use Sorted’s Quick Retirement Calculator.

Get a plan
Once you’ve set your goal you need to work out how to turn it into reality. Your plan should include everything you need to do between now and then to achieve it.

Building your net worth should be at the core of your plan. Net worth is the difference between the value of all your assets (eg your home) and the value of all your liabilities (eg a mortgage).

Buying your own home, purchasing shares, investing in your own business and setting up a retirement savings scheme are all examples that, if you get a positive return, can build net worth. Once you have retired you can sell up some of your assets or live off their return.

Break your plan into bite sized chunks – for example, what you will do this year, in five years time and in a decade or two to increase your worth.

You might decide buying a house rather than paying rent to your landlord is a good first step. A retirement saving scheme may also be part of your plan. These can be particularly attractive if your employer is also making contributions.

To work out how long it will take to save for your house deposit, or how quickly your savings will grow in a retirement savings scheme, use Sorted’s Regular Savings Calculator.

Pay off debt fast
Interest is dead money and makes your purchases more expensive. The faster you can pay off debt, the less interest it will cost you – and you can spend that money to continue to build your net worth and reap the benefits in retirement.

Clearing high interest debt, for example credit cards and hire purchase arrangements, should be your priority. Most credit cards charge around 19% interest per annum and interest is generally charged on the total amount you borrowed rather than the (smaller) outstanding balance .

If you own your own home, work out how quickly you can pay off your mortgage. Say you have a $200,000 mortgage and interest is being charged at 7.7 percent. If you pay it off in 15 years rather than 25, you’ll save yourself a whopping $85,713 in interest. To work out how quickly you can repay your mortgage use Sorted’s Quick Mortgage Calculator.

Keep watching!
Regularly evaluate how you’re going against your plan and amend it if you need to. Unexpected events, such as having children earlier than you planned, might throw your retirement dreams awry. But don’t be disheartened. If you continue to make good financial decisions that build your net worth you’ll probably find you’re still on track to achieve your dream, albeit it’s two years later than you originally planned.

To work out how soon you can afford to retire visit www.sorted.org.nz. Sorted is packed with powerful calculators and helpful information to help you achieve your dreams.