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Super For Self-Employed: Saving For The Future

Superannuation (super) for the self-employed is often underfunded compared to those who are employees with companies or other small businesses. However, in a time and age where about 10% of the Australian workforce is “self-employed”, it’s more important than ever for the self-employed to understand exactly how much money they need to be saving to have a comfortable retirement.

How Much Should I Have Saved for Retirement?

While there is no one ‘right number’ that fits every single individual out there, you need to plan in a way that leaves you with enough money in retirement to pay your expenses and live a comfortable lifestyle.

For example, if you own your own home at retirement and are part of a couple looking to live a modest lifestyle, you should aim to have at least $40,000 for each year. This is a rough indication, based on people retiring at age 65 who will live to an average life expectancy of about 85.

How Important is Superannuation?

Superannuation is the primary source of income for many people in retirement. Yet ASFA states that around 19% of the self-employed have no super, compared with only 8% of employees. Those self-employed who do have super tend to have lower superannuation balances compared with wage and salary earners.

Super is a tax-effective way to save money for your retirement. Contributions you make into super for yourself are taxed at 15%, instead of your individual marginal tax rate (which can be much higher).

How Can I Grow My Super?

If you are self-employed, you can make non-concessional (personal) contributions to a super fund. There are limits on the amount you can contribute each year – if you decide to put more money into your super than the limit, you will have to pay extra tax. You can generally claim up to 100% of any personal contributions you have made throughout the year as a deduction in your tax return.

Low or middle-income Australians who are self-employed may be eligible to receive support from the Australian Government, to help save for their retirement. If you’re making less than $37,697 per year (for the 2018/19 year) and make a personal contribution to your super fund, the Government may make a contribution (called a co-contribution) up to a maximum amount of $500. In addition, if your income is below $37,000 a year, you could receive a refund of the tax paid on your personal deductible contributions, up to a maximum of $500, paid directly into your super account.

In the end, how much you choose to save for your retirement is up to you, but investing as much as you can afford into your super is a wise route to take, and the best time to start is today.

For more tips for small business managers, check out our blog. Please contact us with any questions you may have regarding our services and to learn how we can help you start saving for your retirement today.