The essentials of superannuation for business owners
Women tend to have about 25% less in their superannuation than men (1). That’s quite a startling figure, especially since we tend to live longer than men.
More time out of paid work to care for families and the gender pay gap are two reasons for this. A third reason I’ve discovered over the years of working with my clients is that, as business owners, women don’t place enough importance on contributing to their super.
I want you to be financially empowered, with a strong future ahead of you, which is why I’m breaking down the essentials of super in this blog post.
How much will you need when you retire?
Working out how much you will need in retirement can feel overwhelming. So, I wanted to share some helpful resources to help you work this amount out.
Detailed Budget Breakdown – this resource from ASFA (a policy, research, and advocacy body for Australia’s super industry) lists the weekly and annual expenditure required for both comfortable and modest lifestyles in retirement, for both couples and singles.
A single woman living comfortably will need $51,278.30 per year (as at Dec 2023).
Money Smart – this government website has a range of useful information on super, including this tool to help you work out how much you’ll need.
Choose the right superannuation fund for you
You get to choose the superannuation fund that your contributions go into.
ATO has developed a tool to help you compare the different funds - Your Super Comparison Tool.
If you’re feeling unsure about which fund is right for you, or how much you’ll need in retirement, I recommend you seek advice from a financial adviser. Building a strong financial future for yourself is too important to wing it, or to get advice from your uncle’s mate at a BBQ. If you are not sure how or where to find a financial adviser Money Smart has a quick read and then a register of advisers here – Choosing a financial adviser . I also recommend asking your support network about their advisers and the experiences they have had with their adviser – then if you think they will be a fit for you add to your list of advisers to interview.
Financial Advisers can be paid by an upfront fee or a trailing fee (percentage of superannuation balance) so check how each adviser on your list structures their fees as this will be part of your decision.
If you already have a superannuation fund you may have a financial adviser automatically assigned to you by your superannuation fund. Do talk to them as well to find out if you are comfortable taking their advice.
Take advantage of superannuation tax benefits
Did you know that contributing to your super can save you tax now?
As a self-employed business owner, you can claim a tax deduction each year for up to $27,500 in concessional contributions (before tax).
This type of contribution is taxed at 15% within your fund. If that percentage is less than your tax rate, this makes adding to your super a tax friendly way to save.
If you weren’t aware of concessional contributions (ie tax deductible) and haven't contributed up to the cap in the previous 1 to 3 years, you can contribute more to use up previous year's caps (there are limits). There are also limits for those with super balances over $1.48 million.
You can check what you can do by using your MyGov ATO online account as they now report your superannuation balances and annual contributions. Be aware that super funds only report to the ATO quarterly so the information in your account maybe not be up to date.
You do need to be careful not to go over the tax deductible threshold - if you do, contact your superannuation fund to move the funds to undeducted contributions.
How much do you put into your super?
As an employee, your employer paid 11% of your salary into your super, increasing to 11.5%, then 12%, over the next two years.
The amount you contribute to your super as a business owner will depend on your unique situation which is why I recommend you speak to a financial adviser to ensure you are putting enough aside.
I see so many business owners who aren’t contributing to their super at all. They plan to start when they get to a certain sales level, or when they have a certain amount of profit. But then the years start to creep by and no payments are made.
I would far rather you put aside small, regular amounts now, than waiting for some event to happen in the future. Even small amounts can have a large impact over the long term thanks to the power of compound interest.
Remember, your present actions will have a huge impact on your future financial security so put some time aside to work out what retirement will look like for you.
(1) Source of statistic: The Association of Superannuation Funds of Australia, Superannuation Statistics March 2024
Disclaimer: On this website and my social media accounts I provide information about taxation issues, legislation and business management for Australian business owners. This information is provided solely for your education and development as a business owner, with the intention of helping you to understand your business finances, cash flow, and taxation obligations and to assist you in making confident business decisions. The information is not intended to constitute advice and is not financial product advice.
While I take all reasonable care to ensure that the information I provide is accurate, relevant and up to date, I make no guarantees in this regard and disclaim any legal liability for any inaccuracy, incompleteness or error. If you find something that seems problematic, it would be very helpful if you let me know!
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