Many Australians see self-employment as a goal worth aiming for.
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But running your own show can mean retiring with very little in super savings – one in five self-employed people have no super at all, compared to just 8 per cent of employees. Self-employed women are especially hard hit. Among women aged in their 60s, the average super balance for wage and salary earners is $175,000 – double the average balance of $83,000 for women who run their own business.
ASFA is calling for the superannuation guarantee, which underpins compulsory employer-paid super contributions, to be extended to include those who work for themselves. With about 1.3 million Australians running their own show, the idea certainly has merit.
However, as any self-employed person will know, it’s not always easy finding the money to contribute to super. Spare cash is often re-invested or set aside to cover tax bills. Self-employed people can face uncertain income streams, and it may seem sensible to squirrel money away for times when income is sporadic or leaner than usual.
Nonetheless, if you work for yourself there are good reasons to contribute to super. For a starters, it offers a source of income in retirement – one that can be more of a sure thing than relying on the sale of your business to fund life after work.
Adding to super can also provide tax savings today. If you’re self-employed, you can claim an annual tax deduction for up to $25,000 in “concessional” (before-tax) super contributions.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.