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Super tips to reach self-employed retirement goals

Tags Money Management Retirement Savings
Category Retire SMSF

Self-employment is an achievable Australian dream. According to the Independent Contractors of Australia, there were two million self-employed people in 2013, equating to just over 17 per cent of the workforce.1

Self-employment can bring a long list of benefits such as work-life balance, the opportunity to build wealth beyond a weekly paycheque and the chance to be your own boss.

However, it also comes with many financial responsibilities. One of the most important is superannuation. If you are self-employed, you will need to make your own superannuation contributions, as there is no external employer to make them for you.

So why should we care about superannuation? Superannuation is all about planning for the future. It may not be top of mind right now, but results of the 2014 RaboDirect Financial Heath Barometer suggest we need to prepare now for a comfortable retirement.

What is the reality?

According to the results of the 2014 Financial Health Barometer, 47 per cent of Australians believe they will run out of superannuation in retirement and need to rely on the aged pension. Additionally, 24 per cent believe they will retire with a mortgage – a scenario that concerns the majority of respondents.

Women face the biggest challenge, with a gap of $361,913 between what they expect to have in superannuation at retirement ($439,490) and what they estimate to need to retire comfortably ($801,403).

Interestingly, those who are confident that their superannuation will fund their retirement are more likely to make before- or after-tax contributions to their super. They are taking action now to help ensure they achieve their retirement dreams.

What can I do?

For the 17 per cent of Australians who are self-employed, the good news is voluntary superannuation contributions are tax deductible – up to an amount of $35,000 per year depending on your age.5 The closer you are to retirement, the higher your contribution threshold.

If you earn less than $49,488 per year, you could be eligible for the government’s superannuation co-contribution. In this instance, the government will match every dollar you contribute to your own superannuation with a $0.50 co-contribution, up to a certain amount. That’s an instant 50 per cent increase on your super contributions!

Lower income earners may also qualify for a further $500 co-contribution from the government. And the co-contribution is automatically calculated and paid to your superannuation account after your tax return has been lodged – so it’s a great way to boost your super amount over time.

Self-managed super funds (SMSF) are worth researching further when considering your superannuation options. SMSFs have the same role as other regulated super funds. The difference is, generally, that the members of an SMSF are also the trustees. As a trustee, you control how your SMSF funds are invested and the payment of benefits.

Plan now, enjoy later

The day-to-day financial challenges of self-employment can be time-consuming – invoicing, GST, BAS and more. But if you dream of taking that overseas trip of a lifetime during retirement, now is the time to look at your options. Why not start making the financial choices that will maximise your superannuation and support those well-earned retirement goals?

1 Independent Contractors
2 RaboDirect Financial Health Barometer survey, 2014
5 Moneysmart

Disclaimer: The views expressed, and any advice given, in the above article are those of the author, and do not necessarily reflect the views of RaboDirect. We recommend that you seek professional advice before making any decisions relating to the matters discussed in the article.