You're your own boss ... but are you the boss of your retirement plans?

By Janice Roberts

South Africa’s oldest man, Fredie Blom, is 115 years old. Living beyond 100 may still not be the norm, but it’s a fact that your chances of making it to a very ripe old age are on the rise. If you retire in your early 60s, this means you could live for another 30 or 40 plus years after retirement, almost as long as your entire working career. The downside of longevity is, of course, that you could outlive your money if you are not prepared for it. 

Although soaking up the sun on tropical islands or exploring far-flung corners of the globe may be possible for some retirees, the reality is that only about 6% of South Africans are able to retire comfortably, according to National Treasury. The majority will not be able to sustain themselves financially during retirement.

The rising cost of living is undermining people’s ability to save and plan for the future. According to the latest Old Mutual Savings and Investment Monitor, 1 in 4 Baby Boomers (people between the ages of 56 and 74) have no formal retirement provision at all.

For those who are self-employed, the perks of being your own boss come with enormous responsibility. While you enjoy freedom and flexibility, you may not have some of the benefits that formally employed people enjoy, like medical aid, life and disability cover and access to a pension or provident fund to which an employer may also contribute.

It is up to you to make provision for your future expenses, medical care and leaving a legacy for your loved ones, which ensures they are taken care of financially when you are no longer around. Koos Nel of Old Mutual Personal Finance shares some tips on how you as a business owner can plan and prepare for the future.

Separate business and personal finance

Whether you have a fledgling or thriving business, it is important to plan ahead. When times are tough, you may be tempted to plough your personal savings into the business, but Nel says this is generally a bad idea. Put money away for tough times when your business is doing well.

“I encourage business owners to separate their business and personal finances. The greater the distinction, the better. It might be achieved by setting your business up in the right structure from the start. Separating the two will give you a clearer idea of your business’s income and expenses, and its profitability. This could make completing your tax return simpler and will also count in your favour when you try to sell your business, as prospective buyers will be able to see on paper the value of your business.”

Plan for life after the business

Many business owners don’t have a clear plan for what to do with their business when they no longer want to work. It is a good idea to think about a ‘succession plan’ for your business early on.

Elements to consider include whether you should sell or get a suitably qualified family member to take over, and whether you should remain partially involved or hand over 100%? If you are selling your business, will there be a transition period before you stop working altogether? Also, from a personal perspective, do you have a plan for what to do with your free time when you no longer need to work?

Don’t rush into retirement

One of the major reasons why business owners continue to work even when they’d like to slow down is that they can’t afford to retire. If this is the case, you may be tempted to continue to work for as long as possible and hopefully your health and wellbeing allow you to.  The lack of retirement planning is probably also the biggest contributor to the failure of family business owners to transition their business to the next generation.

The reason why you have your own business is probably because you enjoy the freedom of not having a boss, so think carefully about how you would feel and cope if you can’t retire independently from the business and also have to depend on your children and other sources to provide for you in retirement.

Start saving as soon as possible, for as long as possible

It is advisable to start investing for your retirement as soon as possible because the longer you are able to save, the better. Being your own boss means you don’t have a formal pension or provident fund that employers offer as well as other benefits like medical aid and life cover. Remember that as you get older your health may deteriorate and medical aid or provision for increased health expenses is something you also need to plan for. 

Appropriate solutions are available for you and your employees to consider, including retirement and risk benefits (death, disability and funeral).

Maximise your tax concessions when saving

You’ll need to be the boss of your taxes too. A tax professional or a financial adviser who specialises in tax can help you maximise your tax concessions. There are various savings solutions that offer you some tax benefits when you are saving, like a tax-free savings account. You can contribute a maximum of R33 000 a year and R500 000 over your lifetime into it and you pay no tax on the interest and capital growth.

There are also benefits to saving in a Retirement Annuity which provides some tax breaks. Contributions to all retirement savings vehicles are now tax deductible up to 27.5% of the highest of either your taxable income or total remuneration, up to a maximum of R350 000 per tax year.

Life beyond ‘work’

When people no longer have to dedicate long hours to their work, they are free to use the time to pursue their passions, do something meaningful like volunteer or consult or freelance. Don’t leave the planning for too late. Use resources like as a guide for what you need to consider. Also try to find a balance between spending money on living well now and delaying gratification to enable you to save.

Get a financial coach

Running your own business presents significant challenges and requires your full attention. Business insurance, disability and life cover or income protection if you are not able to work are also elements that you need to consider. 

A qualified financial adviser can assist you to stay focused on your core activity of running the business. They will take your personal circumstances into account and co-craft a financial plan with you.

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