Retirement planning for business owners

Retirement planning for business owners

What will your retirement look like?

After years building a successful business, many self-employed people may still face a lean retirement. But it doesn’t have to be this way. Planning for your future should go hand in hand with commercial success, and the time to start is now.

When you’re in business, a fair chunk of your time is probably dedicated to running the enterprise. And chances are, any spare time (what’s that?) is spent exploring new opportunities for growth.

It makes sense to nurture your business this way. But all too often small business owners overlook a very important issue – their own needs for the future, particularly in retirement.

One in four have zero super

Without the benefit of employer-paid super, saving for retirement is left entirely up to self-employed workers to manage themselves. And it doesn’t always end well.

Despite contributing to their employees’ super accounts many employers fail to do the same for themselves with almost one-quarter of self-employed Australians having no superannuation at all when they retire1.

Don’t pin the future entirely on your business

Owners of small- to medium-sized enterprises (SMEs) often imagine they can rely on the sale of their business as a means of funding retirement. However, it’s a strategy that can lead to disappointment.

Certainly your business should not be discounted as an investment for the future, however it pays to consider 3 key things:

  • The market value of your business and the need to monitor this, particularly in the years leading up to retirement
  • Who the potential purchasers are and if a transfer of ownership plan is necessary
  • Whether the proceeds from the sale of your business are adequate for your retirement needs

Figures from industry body ASFAshow a couple will need to spend $34,911 annually just to enjoy a modest retirement. A comfortable retirement will cost about $60,063 each year. However this should only be considered as a starting point, after all a comfortable life can mean something very different from one person to the next.

What about the Age Pension, which around 65% of older Australians rely on3 for their retirement needs? This benefit is below even the suggested modest annual retirement income.

Grow your super

Effective and lower risk retirement planning calls for a diversified approach rather than putting all your eggs in one basket. Contributing to your own superannuation account is an excellent way to do this.

Super is designed specifically to fund retirement, and as such it’s lightly taxed both in the accumulation stage, and the draw down phase.

Even better, adding to your super today can assist cash flow. A key point of appeal for SME owners is that before-tax contributions to your own fund can be claimed as a tax deduction up to a limit of $25,000 annually4.

Remember also that superannuation is only a structure and you are able to decide how your money is invested within this structure to suit your needs, from cash to shares and even property.

Could a DIY fund be right for you?

If you don’t already have a super fund in place there are a number of options available and a DIY fund may even be right for you. Establishing a self-managed super fund comes with a range of responsibilities and baseline costs, however, it does allow some investment choices that aren’t otherwise available in other options.

The key take out is that, yes, your business is an important aspect of your life – but so is your future financial wellbeing. Give yourself peace of mind for the future with advice from appropriate professionals so you can continue to focus on growing your business today.

Contact my office today to find out how you can start planning for retirement.

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Source: Super and the self-employed, ASFA Research and Resource Centre – May 2016


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