21
April
2017

Self-employed risk substandard Retirement

What are your options?

Compulsory superannuation contributions ensure that most of us are mandated to save a large portion of our income to provide for our retirement. This is not the case for the self-employed.

Some self-employed will be able to sell their business and use these funds for retirement. This is not an option for lots of businesses. In many cases, the business value is closely linked to the owner, effectively they ARE the business.  In these cases, without the owner, the business is difficult to sell.

Businesses that operate as a company are required to pay the owners Superannuation on income they earn for working in the business. This ensures that many self-employed are mandated to make some provisions for their retirement. However, it is a common strategy for business owners to pay themselves a modest income and take profits from the company in the form of dividends or director fees, neither of which requires compulsory super payments.

 The self-employed need to pro-actively prepare for their retirement.  The areas to build wealth include making Superannuation contributions, acquiring assets outside Superannuation and creating value in the business.

Superannuation has many taxation benefits and is specifically designed for retirement. All contributions are tax deductible; the earnings inside taxation are taxed concessionally. It is easy to invest savings in line with your individual needs and risk tolerances. Preservation means those funds aren’t available to be accessed, which ensures they will be there at retirement.

Building wealth outside super, although not as tax effective as Superannuation in most cases, enables you to continue to have access to those assets. Given that the self-employed often have less stable income, the ability to access these assets often outweighs the tax benefits of the Super system.

The type and nature of the business greatly affects the ability to sell the business. Businesses in some industries are very easy to sell and have high values.  Financial planning businesses fall into this category. Other industries however, are much more difficult to create value.

There are a number of strategies to increase the value of a business. Things like becoming less key person dependant, creating a succession plan and having well defined practices that would allow an outsider to come and run your business are all methods to extract value from your business.

 

If you are self-employed it is extremely important to be aware that you must actively save for your retirement.  Otherwise you run the risk of not being able to fund the lifestyle you imagined once you have left the workforce.

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services

Past:

  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State

Education

  • University of Western Sydney
  • Penrith High

About

As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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