Ever wondered how your self-employment is going to affect your retirement plan?
When you have your own business there tends to be a lot more to consider in your retirement plan. It is never too early to start planning for the life that you want when you are finished running your business. If you are self-employed, planning for your retirement is vital.
Here are seven things you may like to consider when you start planning for your dream retirement if you are self-employed:
1. Are you planning to sell your business?
Many business owners plan to sell their business when they retire and use the funds to retire with. While this can be a great strategy, it’s important to be realistic and plan in advance for this.
Depending on your business, it isn’t always the easiest thing to find a buyer – especially a buyer who is willing to pay what you want for your business.
A good first step is to discover the true monetary value of your business. This may help you decide on whether you are planning to sell or not.
The other thing to keep in mind is that the current value of your business may be extremely dependent on you as the face of the business. As a result, when you leave, this value may drop. Keep this in mind when you are planning your exit strategy and consider ways you can increase the value of your business, even after you are no longer the face of it.
2. Consider a Buy/Sell Agreement
If you have one or more business partners, a buy/sell agreement may be an important consideration.
A buy/sell agreement is a legally binding agreement which binds the continuing owners of a business to purchase a departing owner’s interest in the result of certain events including the death or total disablement of one of the owners. If you do not have this, business partnerships can change very quickly and may be out of your control.
Think of it like this: if one of your business owners was to pass away, how would you feel having your ex business partner’s spouse telling you how to run your business? If your answer is “not great” then a buy/sell agreement may be something to set in stone.
3. Find out how much you are going to need for your retirement
Ideally, you want to be financially comfortable throughout your retirement but the exact dollar number you need can be difficult to determine. Your individual number will be based on the lifestyle you want to live as well as your assets, debts and dependants.
The Association of Superannuation Funds of Australia [ASFA] estimates the budget you will need for your retirement each year depending on your preferred lifestyle:
Total per year as a single:
- To live a modest lifestyle, you will need approximately $27,902
- To live a comfortable lifestyle, you will need $43,687
Total per year as a couple:
- To live a modest lifestyle, you will need approximately $40,380
- To like a comfortable lifestyle, you will need approximately $61,9091
It is important to remember that these numbers are a guide only. At CCFPG, our experienced Retirement Specialists take your personal circumstances into account to determine a more accurate retirement budget for you.
4. Pay yourself what you are worth
Too many business owners underestimate their worth and pay themselves a smaller salary than they should be. Don’t undervalue your hard work and countless hours that you put into your business! Paying yourself a valuable salary will also be useful when you are financially preparing for your retirement.
Another question you may want to consider is are you paying yourself super? If you are self-employed, you don’t have to pay yourself super, but it may be a good idea to help save for your retirement. Super investments generally get better returns than your savings account so paying yourself super might actually help your savings to grow quicker.
5. When do you want to retire?
The retirement age in Australia isn’t fixed so you can retire whenever you want. But you will be able to access your super from the age of 55-60, depending on when you were born.
When deciding when you want to retire, you should consider your health and financial situation as well as your partner’s plans as this can play a large role in your decision. Having a goal age to retire by can help in the creation of your plan to make sure you stick to your preferred timeframe.
6. Include your partner and your family in your retirement strategy
Your retirement strategy should be something you discuss with your partner and your family. They are likely to be affected by your retirement strategy, so it is worth making sure your plans line up with your partner to ensure you are both on the same page and heading for the same goal.
This is especially important if you are planning to hand the family business down to your children. It is important that you and your children clarify all the details of this plan and are aware of the roles and financial input you will both be making to the family business.
7. Give yourself plenty of planning time
Planning takes time and it is never too early to start planning for your retirement. After all, retirement is the time where you get to finally stop and live the life that you really want.
When it comes to organising the future of your business after you retire, it can take time. Starting your plan earlier will make sure everything is on track to retire when you want to and avoids any stressful last-minute planning or decision-making.
So, what are you waiting for? Whatever your goals are for retirement – even if you’re not quite sure yet – a little bit of planning goes a long way.
At CCFPG, our Business Retirement Specialists can help you plan for the retirement you deserve.
If you are looking for the ultimate retirement lifestyle, or need help coordinating your business and retirement plan, book a complimentary initial appointment with one of our Business Retirement Specialists. We have offices located in Central Coast – Erina (CCFPG), Newcastle – The Junction (NFPG) and Sydney CBD (SWA).
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.