It’s easy to get caught up in the day-to-day running of your business and forget to think about retiring. These tips can help you plan for a stable future — including advice on KiwiSaver as you get closer to dipping into this nest egg.
What will you live on when you stop work, or dial back your hours? Your savings, including KiwiSaver? Proceeds from selling your business? Or will NZ Super be enough?
“The newly retired have particular challenges on how to manage their nest egg so it lasts,” says David Boyle from the Commission for Financial Capability.
“While many of us keep working in our businesses — or become consultants — way past the age of 65, sooner or later we’re going to wind down and do all those things we always wanted to. And that takes planning,” Boyle says.
“There are many choices to be made that you don’t get any practise for, and — no pressure — you don’t have the chance to recover if you don’t get it right, because you’ve already sold or shut your business. KiwiSaver can help if you draw down your funds gradually throughout the years.”
Thinking about these choices well in advance — and getting sound advice — means you won’t have to make decisions under pressure or while stressed. It’s a great way to safeguard your financial future.
But focusing on the present, rather than the future, is a common trait among small business owners and sole traders. A recent survey for Xero found that although 20 per cent of all New Zealand small business owners are likely to retire or sell their businesses in the next decade, few have put much thought into an exit or succession plan.
Tidal wave of small businesses set to exit in next 10 years (external link) — New Zealand Herald
Like all investment funds, you need to effectively manage your KiwiSaver, no matter what your age is. If you’re not already in it, you’re missing out on free money from the government — a top-up of $521 a year if you put in at least $20 a week, or $1,043 a year.
But there are new decisions to make about risks vs returns — and how long you want this nest egg to last — the closer you are to slowing down or stopping work.
It’s important to manage your KiwiSaver account according to how soon you’ll need that money.
Your comfort level with taking financial risks also plays a part. “You don’t want to be losing sleep or become too anxious about the level of risk you’re taking,” says Tom Hartmann, personal finance editor at Sorted.
KiwiSaver funds can be accessed after the age of 65, or when you’ve been in the scheme for five years, whichever comes later. You can stay in KiwiSaver after that for as long as you choose, with no requirement to withdraw all your savings.
Boyle recommends discussing your options with your KiwiSaver provider or an independent advisor. “There really is no substitute for good financial advice when you’re planning for your retirement, particularly with how your KiwiSaver funds will support your well-being in those years after you’ve worked so hard.”
The Sorted website is another useful source of tips and information. Sorted is tended by the Commission for Financial Capability, tasked with helping New Zealanders get ahead financially.
If you need to check if your KiwiSaver fund is right for you, or if you haven’t chosen one yet, try Sorted’s Fund Finder tool. You can search through funds by risk level, and sort by fees, services and investment returns.
Will it be enough to sustain your lifestyle? Or is there a gap you need to fill? NZ Super currently pays $390 a week for individuals.
Retirement is a milestone for you and for your business. Set aside time to think about what you want your future to be like — and whether you want your business to continue once you step away.
As you approach retirement you’ll need to decide if you want to sell your business, pass it on to family members, or simply close the doors. No matter what you choose, you’ll need to have a plan in place to ensure you don’t lose everything you’ve worked so hard to build and save for.
Use our quick-focus business plan template to reflect on your current position, to set your focus and create a to-do list. It’s important to keep your business plan as a living document — don’t leave it to gather dust on a shelf.
Whichever is right for you and your business, think about what steps you need to take to get ready for a smooth transition. Small businesses without plans in place often fail when their owners retire, get sick or die.
Don’t wait for a health scare or 65th birthday to rush you into an ill-planned decision. The best plans are made years in advance when key people — your deputy or business partner, or any family members — have time to discuss and formalise what will happen.
Even if you close your business rather than sell it as a going concern, think about what will happen to its assets, including intellectual property. You’ll want to get a good price for these.
Whether you operate as a sole trader, partnership or company, you can think about selling at any stage, from before launch to approaching retirement. Potential buyers will want to know about:
Selling a business is a specialist area so it’s worth getting an advisor to help you.
A solid succession plan is essential if you want your business to carry on successfully after you leave it.
You may want to pass management or ownership to your children or a trusted business partner. Or you might want to retain some ownership but take a back seat on day-to-day management.
Whatever you choose, there’s a lot to consider and you may need expert advice. Steps to take include: