It’s 2021 and women are still retiring with 47% less super than men. At $90,000 less on average, that’s a whole chunk of change!
Just why women find themselves in this position is no great mystery. Among other reasons, we know that documented gender pay gaps persist; women access only one third of government tax concessional treatment of contributions while men access two thirds; and many women take career breaks to care for children.
The system simply isn’t structured to support women succeeding in their retirement. However, as a female entrepreneur running your own business, you’re used to hard work and vision – two critical skills that can help to set you up in retirement. With a few simple strategies and some planning, you can build a retirement nest egg for the retirement you deserve.
Strategies for increasing your super – get invested in your own super
Understand your super
You need to know where your super is invested, how it’s performing, and what fees you’re paying (yes, that means opening that super statement that arrives in the mail). Canstar publishes information about performance and fees for each super fund and also ranks them. You can compare super funds and the website has useful information such as how to read your super statement. If your fund isn’t ranked well, consider switching to a better one.
You can look for any lost or unclaimed super through AUSfund and the ATO. If you have multiple super accounts, you’re wasting money on fees. Consider consolidating all your super accounts into one to save on fees. Even a small difference in fees adds up to a lot in retirement. Just be careful and make sure you don’t lose any insurance benefits attached to a super account. Speak with an adviser to ensure continuance of cover.
Due to the beauty of compounding income, the earlier you start investing money into your super the more it will accumulate for your retirement. Even putting in small extra amounts like $10 a week can make a big difference in retirement.
This is the golden rule for business owners but one that’s so often neglected. Many business owners think they can set themselves up by selling their business when they retire, however research has found on average self-employed females’ super balances are one third of female employees so this is quite a shortfall to make up. Put yourself on the payroll and pay yourself like everyone else. Not only is it a good exercise in valuing yourself and charging yourself out at a reasonable rate, but you can claim it as a tax deduction. If you have the mindset of treating it as another business expense you can factor it into your budgeting and cashflow. The limit for tax-deductible contributions is $25,000.
Consider moving to an SMSF
A Self-Managed Super Fund (SMSF) may be a great option if you have the skills to manage it, as it gives you control over where your super is invested. Becoming more involved with your super can also act as great incentive to contribute more money. Speak with an SMSF expert about whether this option is appropriate for you, since you do need a minimum amount to make it cost-effective.
Buy your business property via an SMSF
A great strategy worth considering is to buy a commercial property in your SMSF and rent the commercial premises back to your business. That way your super gets the value of the rent as contributions, and you get to be your own landlord.
Salary sacrifice strategies are tax effective. You get a tax deduction at your marginal rate and the super fund only pays tax at 15%. The limit for tax-deductible contributions is $25,000 per year. This strategy is particularly effective if you’re over 60, when you can withdraw the money again and pay no tax (set up as a Transition to Retirement Income Stream and limited to 10% of your member balance).
If you need to take a career break keep on contributing
Just because you stop work doesn’t mean your contributions should stop. Keep them up. A spouse may also make contributions on your behalf, with Spouse Tax offsets and contribution splitting available.
Take advantage of being on a low income whilst being on a career break: if you’re on a low income and contribute $1000, the government will match your contribution with $500. That’s free money with a great return. Plus, if you earn less than $37,000, your super also gets a refund of the tax paid on tax-deductible contributions up to $500.
With these simple strategies you can ensure your super is working for you, and you can start to get excited about your own super. Changing your attitude and behavior towards your super now means you’ll reap the rewards once you hit retirement.
Any advice contained in this article is general advice only without reference to your individual circumstances or objectives. Always consult a Licensed Adviser before acting on any advice.