Self employed Tradies are at risk of retiring poor due to a combination of two factors:
- Many run their business as Sole Traders or Partnerships, which means they are not required to make compulsory superannuation contributions for themselves; and
- People with manual jobs are not likely to be able to work as long as those with non-manual jobs. This means less time saving for retirement and more time drawing on retirement savings.
Superannuation and the Self Employed
Unlike those who are employed or self employed through a company, self employed people using a Sole Trader or Partnership structure are not required to make superannuation contributions for themselves. The result is that many self employed people end up with significantly less super.
While both sets of numbers are low, median numbers a likely to increase over the coming decades as more people retire after benefiting from compulsory superannuation contributions for their entire working life. The key take out is that many self employed workers have less than half the superannuation of those who are employed. Without significant personal savings or investments, self employed people risk a serious retirement funding shortfall and will ultimately take a significant pay cut in retirement, resulting in a lower standard of living.
“But my business is my super”
For some this may be the case, however small Tradies are unlikely to have significant business value outside some plant and equipment and potentially a small amount of goodwill. Even for those people with medium size business, a 40 year old who wants to spend $60,000 pa in retirement will need somewhere around $1.7 million in retirement savings by age 65. Will your business and super be worth $1.7 million by retirement?
Manual Jobs and Retirement
The second factor affecting Tradies funding their retirement is that the retirement age is slowly moving towards 70 and it is going to be harder for people who have worked manual jobs to work as long as people who have worked in office based jobs. This could result in people retiring earlier, giving them less time to accumulate retirement savings, and spending longer in retirement, meaning they will require more money to retire on. This could increase retirement funding gaps significantly.
What should you do?
The combination of lower superannuation balances, retiring early and having a longer retirement could be devastating for self employed Tradies over the next few decades and while it is easy to put this to the back of your mind as it is a long way down the road, the time to act is now. Contributions made today will feel a greater effect from compounding returns and make saving for retirement easier.
Luka Group have a range of specialists in Small Business and Superannuation. Contact Sam Campbell on 02 6883 2200 or to organise a time to discuss your superannuation.
