6 Things every business owner should consider when planning for retirement

Aug 21, 2022
Tips for planning your retirement as a business owner. Source: Getty

When you’re busy running a business, it’s easy to put off thinking about your retirement. But don’t let it sneak up on you!

Preparing a retirement plan will make it a lot easier when the time to enter this next chapter of your life comes around. Having a plan in place can also be beneficial if you are forced into retirement earlier than anticipated.

Consider the steps below to help you transition from running your business to enjoying a comfortable retirement.

1. Superannuation: Start planning your retirement early

The first step to planning for retirement is contributing to your superannuation.

As a business owner, you are responsible for paying your own super, and the earlier you start doing this, the more super you will have to fall back on when you’re ready to retire.

When exiting your business, you may also have the opportunity to qualify for higher limits on how much you can contribute to your super and potentially take advantage of the 15-year small business CGT exemption.

To contribute to your super, a self-managed superannuation fund (SMSF) is a popular choice for many business owners as it has several benefits, including lower tax rates, more investment options and flexibility. However, it is recommended to seek professional advice to find out if an SMSF is right for you.

2. How a transition to retirement pension works

If you’ve reached your preservation age (between 55 and 60) and are still working, you may want to consider a transition to retirement (TTR) pension.

A TTR can be beneficial to access your super to supplement your income if you decide to reduce your work hours or boost your super and save on tax while you continue to work full time.

However, it is important to note that you must withdraw at least 4% of the balance of your TTR account and can access a maximum of 10%, which means you need to consider how much super to transfer into your TTR account when you open it.

Before starting a TTR, you should consider your retirement plan to ensure you have enough super to fund your retirement.

3. Developing your succession plan

Your succession plan is essentially your exit strategy, and having one in place will help facilitate a smooth transition for you and anyone else in the business when you retire.

To create your succession plan, you will need to decide on the following:

  • Do you want someone to take over your business?
  • Do you want to sell the business?
  • Will you close the business permanently?

Depending on your priorities, there will be different considerations, such as how much you can sell the business for, structuring purchase agreements and how to efficiently transition to new owners.

If you are planning on selling your business, you may also want to consider strategies to increase your business’s value before your retirement.

Deciding what you intend to do with your business will also help determine how much you need to save for retirement.

4. How much will my retirement cost?

Estimating how much you need to fund your retirement will depend on several factors, including:

  • What you do with your business (sell or close)
  • Your super balance
  • Your planned lifestyle (consider factors such as whether you will continue to work part-time, your partner and family, travel plans, personal goals, etc.)
  • Current assets
  • Any outstanding debts

As a general rule of thumb, if you are a homeowner, you are expected to need approximately 70-80 per cent of your pre-retirement income to live a comfortable retirement.

The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard is also a helpful resource to help you work out the minimum annual cost of a ‘comfortable’ and a ‘modest’ standard of living during your retirement.

5. Creating your retirement plan

Once you have an idea of what you will do with your business and your goals during retirement, you can start developing your retirement plan.

This means deciding on key dates, such as when you want to retire. This date can be flexible and may change, but it is important to have an estimate in mind to work backwards from.

With an estimated date, you can set deadlines for any pre-retirement tasks you need to complete.

Once again, depending on what you intend to do with your business, it may take several years to sell, train your successor, and pay off debts.

6. Seeking professional help

Planning for retirement can be overwhelming, especially when you are busy running your business.

It’s recommended that you seek professional advice if you are unsure about the right path for you and want to discuss any of your options further. Seeking expert guidance from an accountant or financial advisor will ensure that you comply with any legal obligations, that everything is set up correctly and that you are taking advantage of all opportunities to set you up for your future.

Creating your retirement plan and making these important decisions will take some time.

The key to creating a successful retirement plan is to start early to ensure your transition is as smooth as possible, so you can enjoy the retirement you deserve.

So, start planning now – your future self will thank you for it.

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