Simran Kaur: “Should we be making additional contributions as freelancers? Or is our money better off kept in our own pockets. Let’s figure it out.”
Simran Kaur is the co-founder of Girls That Invest, which offers commentary on personal investment aimed at young people.
Question: How much should I contribute to KiwiSaver if I’m a freelancer? Just enough to get the government contribution? I invest in the stock market instead of putting it all in KiwiSaver.
Answer: This is a great question.
One of the great benefits of being a freelancer is your ability to choose your own schedule, take leave when you want to and, of course, being more in control of your financial future.
This comes with its own setbacks, one being that your retirement plan is in your own hands. But how do we mitigate that risk?
Should we be making additional contributions as freelancers? Or is our money better off kept in our own pockets? Let’s figure it out.
What KiwiSaver benefits do you get as an employee?
When KiwiSaver began in 2008, the idea was to help everyday New Zealanders put money away towards their retirement.
If you were a pay-as-you-earn or PAYE employee, someone who earns a wage or salary that is taxed directly from your pay, you would be eligible for KiwiSaver contributions from your employer.
The benefit of being an employee is that your employer has to present you with the option of signing up to KiwiSaver and is obligated to contribute an amount equal to at least 3% of your income to your KiwiSaver fund.
Some employers are extra generous and match a higher amount. No other investment scheme allows you to receive a 100% return on your money. It’s a great benefit.
(Watch out for some contracts that talk about a total remuneration package – that means the 3% is being taken from your overall pay amount rather than an additional 3% being paid.)
David Boyle talks about why people might not be contributing to KiwiSaver
What KiwiSaver benefits do you get as a freelancer?
Freelancers are their own employer so they do not qualify for an employer contribution.
But freelancers should charge more for their time to compensate for the loss of benefits like this, and things like holiday pay.
KiwiSaver can still have a place in a freelancer’s financial plan. One of the main benefits of KiwiSaver that gets overlooked is the free annual government contribution.
If you contribute $1042.86 before June 30 each year, you’ll get the maximum government contribution of $521.43. That’s a 50% return on that money and is again very hard to replicate in any other investment scheme.
You can pay this $1042.86 as a lump sum directly via Inland Revenue or your fund provider, or set up an automatic payment for $21 a week.
Another consideration that is often overlooked is that being part of KiwiSaver qualifies you for the Hirst Home Grant.
If you’d like to purchase your first home and get access to the grant, one of the criteria you’ll need to meet is contributing the equivalent of 3% of your income regularly for at least three years.
Contributing for five years qualifies you for the maximum $5000 grant. While $5000 doesn’t go very far in buying you a home, if the grant ever gets a top-up by the Government, it’s good to know you’re still eligible.
Simran Kaur and best friend Sonya Gupthan have started a financial podcast aimed at helping younger people invest in the stock market and break down some of the age old stereotypes.
I get that I should be putting money away, but does it need to be in KiwiSaver?
In terms of if you should put your retirement money into KiwiSaver or a private fund, it depends on your goals, risk tolerance and discipline.
Many freelancers I’ve worked with have chosen to invest their money in KiwiSaver as they are known to be impulsive and pull their money out. It’s a form of “forced investment”.
Others have chosen not to do this. You may find that KiwiSaver doesn’t offer the aggressive growth fund you’re looking for, or, on the other hand, you may find the KiwiSaver fees end up being cheaper than the mutual fund you were eyeing up.
This is a personal preference, and you should seek personalised financial advice about which investment product is best suited for you.
How much should you be putting away?
This was one of the things I struggled with when moving over from full-time employment to freelancing – how do you decide how much to put away?
I personally put away 6%, but that comes from knowing what my retirement number is and then working backwards to find out how much I should be saving each week
Plugging these numbers into a retirement calculator like this one by Sorted will let you work how much you need to live off, and therefore how much you should be putting away.
Putting away 3% of something is going to leave you much better off financially at retirement than 0% of nothing. No matter where you put your retirement funds, every little bit adds up.