While it can sometimes feel like yet another expense, your superannuation is an essential investment in your future. It’s hard to keep your eyes on a prize that far down the road, especially when you have so many other bills to pay. But the fact of the matter is, as a small business owner, if you don’t pay into your super, who else will? What do you plan on doing when you get to retirement age? Carrying on working? Living as minimally as possible? Kicking yourself because you had all that time to save and you put it off? Ultimately, there are a huge list of answers to the question, ‘why pay yourself super’ and I’ve listed some of my favourites below…
Why pay yourself super: Reason #1… A comfortable retirement
I don’t know about you, but I’m keen to retire in such a way that I don’t have to worry about every last cent. I want to take the occasional holiday, and yes, indulge in the occasional decadent meal out at the local fine dining establishment. It’s unlikely I’d be able to do that if I have no savings when I hang up my bookkeeper’s boots.
If you accept that a retired couple needs a minimum of $640,000 to retire ‘comfortably’ (and singles $540,000), now would be a good time to stop and assess your progress. Have you been making enough contributions? Do you need to start increasing?
Why pay yourself super: Reason #2… Tax benefits
There are significant tax benefits to making contributions to your superannuation fund. Up to $25,000 in personal contributions each year is eligible for a vastly reduced taxation rate of 15%. These are called concessional contributions. And watch this space, because from July 2021, the cap for concessional contributions will be raised from $25,000 to $27,500. Remember, you can ‘top up’ your contributions by any amount at any time, but they’ll only count for the financial year you’re in.
Why pay yourself super: Reason #3… Added bonuses
There are topics that we rarely like to think about, let alone talk about, but no conversation around the benefits of superannuation can leave out the times things don’t go according to plan. More often than not, your superannuation plan will include additional insurances like life insurance, total and permanent disability insurance and income protection. As a small business owner, these three insurances are incredibly valuable for peace of mind. Especially if you find yourself as the primary breadwinner of your household.
I’d highly recommend investigating your current cover inclusions and making an assessment as to whether these levels are sufficient. They can always be adjusted either by speaking with your current super fund, or by shopping around if you prefer.
It’s a compelling set of answers to the question, “why pay yourself super”. It really does pay to think ahead. And while the waters of superannuation may be complex and difficult to navigate, you have a wealth of resources available to you to make decisions around your super easier. Speak to your financial team today and assess if your current levels of attention to your future wealth are sufficient.
Amanda Findlay is a certified bookkeeper with a brain for business strategy. Get in touch today to discuss how Complete Bookkeeping Concepts can assist you with your superannuation management.