Self-employed? How KiwiSaver can help you get ahead
Are you self-employed and too busy managing your business to give your personal long-term goals some TLC?
We get it – been there, done that. But the future tends to arrive sooner than we expect, so it’s a good idea to carve out some time for you, to safeguard your personal wealth creation and not just that of your business.
So on that note, let’s talk about KiwiSaver. Have you ever wondered if the scheme (KiwiSaver) has a place in your financial blueprint? Contrary to popular belief, the scheme isn’t just for employees. In fact, it can be another powerful tool in your self-employed toolbox. Here’s why.
KiwiSaver is relatively low maintenance.
As a self-employed Kiwi, you probably have enough complexities in your daily life without adding another demanding and time-consuming task to the list. Happily, KiwiSaver is none of the above.
All you have to do is choose a KiwiSaver provider and fund based on your goals and, most importantly, your risk profile – click here to learn more. You can also try our digital advice tool to create your own personalised portfolio from the ground up.
Once KiwiSaver is set up, you can start contributing to it. Unless you’re on the PAYE framework (which may be something to consider), KiwiSaver contributions are not automatic, and you can pay as much or as little as you like. So, the next key step is to understand how you want to contribute and how much.
Would you set up a regular automatic payment? Or, if your cash flow is seasonal, is it better to make lump-sum payments once or twice a year?
Another option - and if of interest, something to talk to your accountant about - is to pay yourself PAYE wages and choose a KiwiSaver contribution rate, just like an employee would do. This way, your regular contributions will effortlessly tick along in the background.
Whatever you choose to do, keep in mind that your KiwiSaver plan is a long-term investment. Just review how it’s going once a year, and if you’re confident that your fund is still appropriate for you, you can largely ignore the short-term ups and downs.
You can get up to $521.43 per year from the Government.
As a self-employed person, of course, you won’t receive employer contributions. But you can still get the annual Government contribution of up to $521.43 – every year. Essentially, for every dollar you put into your KiwiSaver account from 1 July to the following 30 June, the Government adds an extra 50 cents to your balance, up to a maximum of $521.43 per year.
Think about it: what other investment vehicle gives you a 50% ‘guaranteed return’ on the first $1,043 you put in, every year? Even if you have other investments in place, it can still make sense to join KiwiSaver and maximise this annual bonus, by contributing at least $1.042.86 a year to your KiwiSaver plan.
One easy way to achieve this target is by setting automatic payments. Just make sure you check in early June each year, to see how you’re tracking towards that $1,042.86 ‘sweet spot’. And if you’re not there yet, you can choose to make a lump-sum payment before 30 June.
Contribute as much as you like (or need).
It’s common for self-employed people to have lumpy cash flow or significant financial commitments. If so, you may not be too keen on the idea of another big commitment. But here’s the thing: with KiwiSaver, you can invest as little as a few dollars per week – it’s up to you and how you want to use this tool.
And on that note, here’s a couple of key question to ponder…
Do you know how much you may need in retirement? And will KiwiSaver be a primary source of retirement income for your post-work life? Or will it be just an additional income stream, alongside other investments?
According to the latest Retirement Expenditure Guidelines (published by Massey University’s Fin-Ed Centre in late 2022), retired couples currently need to have $755,000 in their savings for a comfortable retirement lifestyle , and $480 if you’re in a couple, you may need as much as $755,000 in their savings for a comfortable retirement in the city, and $480,000 if they live in the regions. That’s to bridge the gap between NZ Super and their spending. How would you fund that difference?
Remember: even if you own a home or plan to sell your business down the line, it’s a good idea to have a plan B as well, just in case. And KiwiSaver can be that plan B.
Now, is KiwiSaver right for you?
If you’re considering adding KiwiSaver to your retirement savings strategy – our digital advice tool is a great place to start. Just answer a few simple questions about your goals, risk capacity and timeframes, and get our recommendations for your personalised KiwiSaver plan in minutes.