The Super Fund Co. Blog

We had a visit from a new client recently who runs his own podiatry business. He was in a bit of a state. It had suddenly dawned on him that he wasn’t far off retirement, and he had been hearing a lot in the media lately about how people need $1 million in super for a comfortable retirement. 

The final straw was when he started putting feelers out about selling the business he’d shed blood, sweat and tears over for so long. Buyers were only prepared to pay half what he thought it was worth. 

Too busy managing his business, he hadn’t been paying much attention to his super. In fact, he didn’t even know how much he had before he came in to see us. 

Sadly, we have heard the same story so many times in recent years. 

According to the Australian Bureau of Statistics, small business owners have the smallest superannuation balances of any sector. These are the most common answers we get when we ask why:

• “I want to reinvest profits back into my business”
• “I’d prefer to put my money into something I have control over”
• “I don’t believe in super”.

Although these reasons sound good in theory, rarely do they help you retire in the style you have always dreamed of after years of hard work. So what can you do?

Take control of your retirement funding

Remember that super is just a tax structure, it’s not an investment in itself. You can still control where you put your hard-earned cash. You can own a little bit of Australia (and the world’s) other successful businesses, ones far bigger than your own, at a fraction of the cost. You can choose to park money in a term deposit or perhaps look at the overseas share market, if that’s appropriate. The key is to spread your investments.

Tax treatment is great for business owners

As a small business owner, you can claim a 100% tax deduction on what you contribute to super (up to $35,000 for the 2015/16 year if you’re over 50, and $30,000 if under 50). Earnings are taxed at only 15%, and the government has also opened the door for the ‘co-contribution’ scheme to small business owners. 

It’s not just for employees

You’re paying super for your employees so you need to follow suit and ‘pay yourself first’. A simple way to start is to set up an automatic debit each month or quarter, just as you do for your loyal staff. 

This is what we suggested to our client

When we looked at our podiatrist’s situation, he had left it a little late but it was still salvageable. He was 48 and had just $50,000 in super, built up from an earlier career. We suggested he start contributing 9.50% of his salary from now on. He paid himself a salary of $80,000 p/a, so that equated to $7,600 a year towards his super. 

Based on a net return of 7% p/a (a typical ‘balanced’ fund long-term average), a projection shows that he could end up with approximately $357,000 at age 65. Not a bad outcome from such a small contribution and a good ‘back up’ to the eventual sale of his business. 

Being able to contribute more would of course give him a better nest egg at retirement. 

If your situation sounds similar and you would like some suggestions on how to grow your super without relying too much on your business, get in contact with us. We’ll help you set up a plan to achieve this, as well as provide valuable budgeting and cash flow advice.

You’ve worked too hard not to enjoy the best retirement a healthy super balance can buy!