A financial expert shares some steps to be taken by those who want to retire while they are still young.

So what would it take to give up the day job and retire young?

Financial adviser Simon Hassan says few people, apart from those who really hate their jobs, want to quit work at a young age these days.

Fifteen years ago people came to him asking for advice on how they could afford to retire at 60 or 65. Typically they came to see him 10 years ahead of then to start saving for their retirement.

"I can't remember a single client who wanted to work longer [than65]."

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But these days it's more likely to be affluent couples in their 30s and 40s wanting to find out how they can free themselves from day-to-day working and become financially independent from their jobs.

Even he finds it hard to get his head around stopping work at 65. "I'm horrified at the thought."

Just the other day he had a couple come to see him, a woman in her 30s and a man in his 40s who both liked their work but wanted to know when they could be financially free and not have to work.

They were close to paying off their mortgage and were able to nail down a budget of $65,000 a year to live off which meant they could potentially stop working in five years' time.

Hassan says a priority for anyone who wants to get free from the 9 to 5 rat race is paying off the mortgage. The only thing he recommends with a higher priority is joining KiwiSaver, unless you are self-employed.

Ideally, he says, people will have paid off that mortgage debt by the time they reach their mid to late 40s. A time which also coincides with the earnings peak of most people.

Once you've got an emergency fund sorted, insurance and KiwiSaver, money which was going into the mortgage can be used to save and accumulate assets which pay out an income whether that is share dividends, interest on bonds or the dividend yield from a property fund.

Where that money gets invested depends on how much risk the individual is prepared to take on. If they really want to quit work sooner rather than later, Hassan recommends a low risk strategy. But those who don't mind the idea of working longer could take on more risk.

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What about investment property?
For many Kiwis the idea of buying an investment property is attractive.

They can use their mortgage-free home as equity and the bank will let them borrow a large percentage of the money needed to purchase a second property.

Borrowing allows for a high level of leverage and there's a potential for income from rent and money to be made through a capital gain on selling the property.

Hassan isn't against property investment but says he would recommend listed property funds rather than buying a house or apartment directly.

"Our approach is your exposure should probably be through listed property where rent ends up as dividends." They have an average return of 8-9 per cent a year and Hassan says people are unlikely to find a rental property that would pay that kind of yield once the rent and expenses are taken into account.

"People are happy to take 3 per cent because they believe they are sitting on a capital gain. But that's not guaranteed."

Hassan is particularly cautious of direct housing investment at the moment because he says property is overvalued, especially in Auckland.

With a listed property fund you can buy and sell shares daily provided there are other buyers and sellers, giving a high level of liquidity.

A house on the other hand may take weeks or months to sell.

Hassan says the downside to property funds is that the units the fund is made up from perform like shares and go up and down in value.

He encourages people not to focus on that price: "As long as they forget about the daily price fluctuationsand have the capacity to leave it there."

While leveraging up a direct investment in property is easy to do, Hassan says that has to be balanced against the illiquidity in selling the property, period of having no tenants and other tenant-related issues.

How much depends on you
How much of an asset you need to build up to become independently wealthy depends on what kind of budget and spending you want.

Once a person reaches 65 income from New Zealand Superannuation can be used to stretch out the asset. But before 65 people are on their own to fund their living unless they want to go back to work again.

Hassan says someone who wanted to give up having to work at 50 and live off the average wage of $45,000 a year to age 95 would need a pot worth around $1 million.

Waiting another 10 years to give up work would reduce that to somewhere between $720,000 and $880,000. Not that much higher than the average price of an Auckland house.

Eating through the money
Hassan says retirees can eat through 3-4 per cent of their assets per year over a 30-year retirement.

"That's a safe drawdown level."

But that could mean not leaving anything for the kids.

It also depends on the level of risk your assets are exposed to and what happens during your retirement, such as a global financial crisis hitting in the first two years of your 30-year retirement plan.

"That is going to have a big impact on the other 28 years," he says.

Gradual withdrawal from work
Hassan says the only people who really want to retire don't like their jobs. "There are people in their 90s who still like work and get a lot satisfaction out of it."

He says those who stop work gradually from 60 onwards can strike the right balance.

What would it take to to retire young?

*Mortgage-free home.
*To be able to spend $45,000 a year (rising with inflation), a single person who wanted to stop work then would need to invest $1 million to $1.1 million in today's dollars at age 50.
*If they were prepared to work for another 10 years and then stop, the today's dollar total they'd need to invest at age 60 falls to between $720,000 and $880,000.

Note: The illustration is based on a single 40-year-old who will receive NZ Super from age 70 at 70 per cent of today's rate, and who may live to age 95. All sums are in today's dollars. Calculations use real returns (that is returns after tax, fees and inflation). Inflation averages 2% p.a. Investment risk profile: low medium (2 on a range of 1: low to 5: high risk). Target real return: 1.7% p.a., with actual future returns likely to vary from this target by plus or minus 0.5% p.a. The lump sums in bold are those required if returns fall between the low end of the expected real range and the target real rate.

While assumed real returns are conservative they cannot be guaranteed as it is not possible to predict the future. The sums below are generalised and may not be suitable to a particular individual's situation and needs. Anyone seeking personalised financial advice should contact an authorised financial adviser. Simon Hassan's disclosure statement is freely available on request and may be downloaded from www.hassan.co.nz