Small business owners are intensely focused on making their business succeed and sometimes this means re-investing significant amounts of their finances into the business.
While this passionate approach is to be admired, self-employed individuals should take care that they also plan and save for their future selves. Seeking advice about financial planning for your retirement is a smart move for any self-employed individual.
The short answer is now! Even if you believe your retirement is years and years away, it would be unwise to not think about it at all. After all, the decisions you make today will inevitably affect your future self.
In Australia, there is no such thing as a ‘retirement age’, so each individual can choose when to stop working when they want. Many business owners and entrepreneurs are passionate about their work and want to keep working as long as they’re able. Others work hard now, so that they can retire at a relatively young age.
To make the best plans for your retirement, it’s vital to think about your personal retirement goals. When do you want to retire, and what kind of lifestyle do you want to have when you do?
Knowing your goals means you can begin to outline the clear, practical steps you’ll need to take in order to achieve them.
Also consider that unforeseen circumstances, such as illness, injury or financial crisis, might significantly affect the decisions you will make around retirement.
It is therefore wise to start planning and saving for your retirement as early as possible. Taking small steps now will ultimately pay off in the future.
The Association of Superannuation Funds of Australia (ASFA) suggests a couple around 65 years old, who have a modest lifestyle, will require $40,000 annually. A couple who have a more ‘comfortable lifestyle’ might require closer to $62,000.
The significant difference in figures is because everyone has unique goals for their retirement. So it is important to work out what you desire, and then take the steps towards that now.
In Australia, you will be eligible for Age Pension when you reach a certain age (currently 66). But it’s not wise to rely on this only.
Many business owners consider selling their business and using the profit to fund their retirement. While this may be an avenue you consider, keep in mind you will need to work towards this for several years. Most buyers will want to see at least three years of financial statements, and you’ll need time to increase the value of your business.
Additionally, an unforeseen circumstance, such as an economic downturn, might force you to make suboptimal decisions about selling your business. So it’s wise not to count solely on the sale of your business.
The most important thing you can do now is start making contributions to a super fund.
Employees automatically have regular contributions made to their super fund by their employer. However, if you’re self-employed, you’re responsible for your own super contributions.
There are several options available to self-employed individuals, including starting a Self-Managed Super Fund (SMSF). These super funds require a high level of responsibility and knowledge. It is wise to speak to a financial planner who can help you navigate the range of options.
Super contributions have special tax rules, including that you can claim a tax reduction for super contributions. Depending on your annual income, you may also be eligible for government assistance with super.
Having a super fund, and contributing to it regularly, should be a critical part of your retirement plan.
We understand it’s not always an easy thing to make decisions for a future that may still seem far off. However, it is wise in business and for your personal life to think long term.
If you want to speak to a professional business consultant in Perth about determining how you’re going to meet your retirement goals, or have any other concerns about planning for your retirement, we’d love to help you out.
At Lawrence Group, we want to help you feel confident about your future security. Give our office a call today on (08) 6220 7517 or fill out our contact form.