At some stage in our working lives, most of us have considered ditching our job and having a go at self employment. Around 10 per cent of Australian workers run their own show, and while they deserve a pat on the back for entrepreneurial spirit, many could find themselves shortchanged in retirement.
Without the benefit of employer paid superannuation contributions, an alarming number of self employed workers have very little in super.
More than one quarter of the self employed have no super savings at all – a proportion that rises to one in three self employed women.
Among those self employed workers who do have some super, many have less than $100,000 tucked away. It’s a paltry figure when you consider that average life expectancy in Australia is about age 82, and plenty of today’s workers could spend 20 years in retirement.
Unlike workers who answer to a boss, the self employed must make all their super contributions directly out of their own pocket. Running a small business is hard work, and the challenge of meeting day to day business expenses or simply providing for a family can take priority over super contributions.
However self employed workers may also make the mistake of relying on the future sale of their business as a source of retirement funding.
The problem here is that the person who owns the business is often the venture’s best asset. Without this person at the helm, the business may not be successful – or saleable. That’s why a more reliable strategy is to invest in superannuation.
If you run your own business, it’s important to be aware that you may be able to claim your annual super contributions as a tax deduction – within certain limits.
For the current financial year you can contribute up to $25,000 if you’re aged under 50, or $50,000 if you’re aged 50 to 74.
Strict conditions apply to deductions for super contributions claimed by self employed workers, and it’s easy to make an innocent mistake. That makes it important to speak with your accountant or tax adviser well before 30 June to see what you need to do to build your nest egg and trim your tax bill at the same time.
In a bid to solve the super shortfall, the Association of Super Funds has made a submission to the Federal government proposing that super contributions be made compulsory for the self employed.
There’s no telling whether or not this proposal will ultimately become law. But one thing is clear. If you’re self employed there’s a good chance you need to give serious consideration about your future financial wellbeing. Doing it tough in retirement isn’t much reward for decades of hard work running your own business.