Can small business owners and the self-employed afford retirement?

By Liz Maroney, Westlawn Wealth Adviser
SMSF Specialist Advisor™
26 September 2016

While small business owners and the self-employed are busy focusing on the day-to-day running of their businesses, and finding the money to pay the bills each month, many are neglecting their longer term financial security in regard to planning for retirement. That’s what two recent studies into small business owners and superannuation have found. 

On 15 September, accounting group MYOB released its latest SME Snapshot, a monthly online survey of some of MYOB’s small business customers.

According to this latest snapshot, more than one-third of small business owners are not contributing into their own superannuation, despite many paying compulsory super to employees. And while 44% of business owners believe they will need $1 million for retirement, half of those aged under 50 have done no retirement planning at all.

Speaking about the latest survey results, Tim Reed, chief executive of MYOB said:

“Our research shows that SMEs believe they will need around $1 million to retire comfortably, yet 54% of them will not have saved enough when the time comes.

“Being a small business owner means contending with multiple challenges to the financial health of your enterprise. SMEs are often forced to wait months for payment, resulting in cash flow problems. This lack of cash can then impact the owner’s ability to pay their own super, as well as other pressing payments such as wages and rent.”

According to Reed, previous MYOB surveys have consistently shown that cash flow concerns are top of mind for business owners.

For tips on managing your cash flow, read this month’s article by Westlawn Finance MD & CEO, Geoff Scofield on Cash flow worries keeping you awake at night? 3 steps you can take now.

An earlier study, Super and the self-employed, published by the Association of Superannuation Funds of Australia (ASFA) in May 2016 revealed similar findings.

The ASFA research found 22% of the self-employed have no super at all. And of the 78% that do have some super, it is often extremely inadequate amounts accumulated from compulsory super contributions paid in while working for an employer at some time in the past.

Just 27% of self-employed people aged between 60 and 64 have more than $100,000 in super compared to almost half of employees in the same age bracket.

And for self-employed women, the super situation is even worse. According to the ASFA research, self-employed women have super balances that are about a third lower than both employed women and self-employed men.

For more on this, read Women still lagging in super stakes, urged to act now.

ASFA self-employed & super snapshot

  • The self-employed account for around 10% of Australian workforce.
  • Self-employed persons on average tend to be older than employees. Around 20% of self-employed aged 60 years and over, compared with 9% of overall workforce.
  • Average super balance for self-employed in 2013-14 was $60,916 compared with $88,229 for employees.
  • Compulsory super contributions mean only 7% of employees have no super, whereas almost 25% of self-employed have no super.
  • In run up to retirement (assumed to be ages 60-64 in ASFA report), self-employed have around half the super of employees. Only 27% of self-employed aged 60-64 have more than $100,000 in super, compared with almost 50% of employees.

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

Benefits of super

In addition to the rewards of a more comfortable lifestyle in retirement, there are a number of benefits of contributing to super for small business owners and the self-employed. These benefits may include:

  • Claiming a tax deduction on personal super contributions
  • Receiving bonus contributions if eligible for the government co-contribution, and
  • Minimising your tax liability and maximising super when selling business assets.

Another advantage of contributing to super is that superannuation provides a means to quarantine your personal savings in the event that the business suffers difficulties, providing greater peace of mind.

For more information on the benefits of super for the self-employed, read my earlier article on Super tips for the self-employed.

Contact Liz Maroney

Is it time you started contributing to your super? Contact me today for a free, no obligation appointment to discuss your situation:

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Westlawn Wealth Adviser, Liz Maroney is a ...

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