Retirement planning for small businesses and sole traders

Saving for retirement can be a challenge if you are self-employed or run your own business. This is particularly true if you invest most of your income back into your business. These tips from Sorted can help.

Start planning now

Setting realistic goals and making a plan to work towards them is key. Just like employers contribute to their employee’s retirement, you should contribute to your own future.

“It’s never too early to run some numbers and set some future targets to hit,” says Tom Hartmann, personal finance editor at Sorted. Sorted is tended by the Commission for Financial Capability, tasked with helping New Zealanders get ahead financially.

For many businesses succession planning can play an important role in retirement planning. To find out more visit the links below.

How to plan, save and invest for retirement(external link) — Sorted

Set your lifestyle target

Projecting your desired income can give you a sense of what you need to be doing now to achieve your goals and fund your future lifestyle.

Factors that affect how much you will need for retirement include:

  • At what age you’d like to slow down or stop working.
  • How many years you might be in retirement.
  • Where you will live — think about whether you’ll own your own home by then, or if you’ll pay rent or a mortgage.
  • What sort of lifestyle you want to have when you retire.

“We all need to ‘guesstimate’ how much we’ll need in retirement above NZ Super,” Hartmann says. “Using the Massey Fin-Ed survey numbers as a starting point is be valuable to see how our own savings are tracking in relation to these lifestyles.”

The Fin-Ed Centre Expenditure Guidelines help New Zealanders understand the cost of living both a modest and comfortable retirement, based on what retirees are spending now.

Fin-Ed Centre Research(external link) — Massey University

Think about how much NZ Super pays a week.

Think about how much NZ Super pays a week.

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.

Current NZ Super rates(external link) — Sorted

Understand your current situation

After estimating how much you will need, look at your current situation and settings and gauge whether you are on track to reach your goal.

“Using Sorted’s retirement planner sooner rather than later gives us a sense of what savings and investment we’ll need to retire the way we want,” Hartmann says.

Retirement planner(external link) — Sorted

Focus on a steady income

If there’s a gap between your retirement goals and your current financial situation, it’s time to search out sources of money you can pull in to bridge the gap.

It’s more important to focus on setting yourself up with steady income from a number of sources, rather than just saving up a big lump sum.

“These days there’s far too much emphasis on building a nest egg. The question often comes up: how much money do I need to retire? Is it $300,000? $500,000? A million or two? It’s enough to stress anyone out,” says Hartmann. “It’s not about the nest egg you’re building. It’s about the steady income you can achieve in retirement.”

Your retirement income could come from your:

  • NZ Super payments
  • personal savings
  • drawing down on your KiwiSaver
  • ongoing income from your business if you plan to retain shares or a role after you retire
  • other income and investments, eg rental properties, bonds.

The sooner you start securing these sources, the easier it will be to generate the money you need to retire in the way you want.

Selling your business

Do consider opting in to KiwiSaver

Do consider opting in to KiwiSaver

If you contribute at least $20 a week, you get a government top-up of $521 a year.

KiwiSaver if you’re self-employed

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