As we know, the government long ago ensured that employees saved for their retirement by making employers contribute a percentage of their staff members’ income into the Superannuation system. As was the intended result, most people are now retiring with significant Superannuation savings to help fund their retirement.
This is not the case for the self-employed. Superannuation contributions are not compulsory for the owners in many business structures. As a result, many people who work for themselves, despite taking care of their employees’ future, are not looking after their own.
It is for this reason that the self-employed are at risk of having an unsatisfactory retirement and being unable to meet their lifestyle requirements.
For many small businesses, cash flow is inconsistent. A lot of spare money gets re-invested into the business therefore, the owners don’t have the capacity to contribute into Super and have balances well below the long-term averages.
I’m a perfect example of this exact issue. I have worked for myself since a young age. In the early stages of the business, I wasn’t making much money, so I wasn’t contributing into my Super. As I started to grow, excess cash flow was used to improve the business, then the GFC hit.
It has only been recently that I have been able to make contributions to Superannuation. I’m now in the process of contributing very heavily to catch up. Hopefully, I remain in a position to do so for long enough to build my Super to a level consistent with those my age.
Luckily for me, a Financial Planning practice is easy to sell. This is not always the case. Many businesses rely heavily on the owner and, despite being terrific businesses, have very little value to a buyer. For me, my business will form part of my retirement savings, not that I want to rely solely on that. Unfortunately, not all business owners will have that fallback.
As difficult as it can be at times, it is really important for those of us working for ourselves to ensure that we make regular contributions into Super. If possible, I encourage clients to make a Super contribution of 9.5 per cent of their income (at a minimum). This is in line with what they would have to pay an employee.
We need to take care of our own future as well as taking care of our staff.