Being self-employed certainly has its benefits, but there are also downsides. The immediate ones that come to mind are that you are responsible for everything and don’t always get to draw an income. However, there is also the long-term issue of retirement savings.

Data from the ABS shows that on average business owners are older than employees, but have less money put away for retirement. One of the main reasons for this is because it isn’t compulsory for business owners to put money into super.

As a result, only 10% of self-employed people make tax deductible contributions to their super. Not surprisingly, over 60% of business owners have less than $40,000 in their super.

Business owners essentially have the following options when it comes to funding their retirement:

  1. Sell the business – the trap most people make is they confuse what lenders will value their business at and what it is worth. It is only worth what someone else is willing to pay for it. In cases where the owner is the key person, there may not be any willing buyers.
  2. Keep the business and put on a manager – this takes planning and time to make sure you get the right person. With new staff comes higher wages, which eats into your retirement income.
  3. Investing outside of super – the opportunities are endless. Residential or commercial property, shares, bonds, term deposits, international investments and the list goes on. One of the downsides to investing, is any income you earn is taxed at your marginal tax rate. The upside is you can sell your investments whenever you want, which is great when there is an emergency.
  4. Super – you can invest in mostly the same things through super as you can outside of super, but there is the big advantage of the tax incentives the Government provides. They do this because they know you are effectively locking your money away until you retire. While it can be done, it is difficult to access in case of emergency.

To show why I recommend super over other investments, let’s use two people, Chris and Emma. Both are 45-year-old business owners who invest $25,000 per year. They both draw a wage of $115,000 so their marginal tax rate is 37%.

Chris puts his $25,000 each year into super and invests in a mix of Australian and International shares. Emma buys $25,000 worth of Australian and International shares through the Australian Stock Exchange and holds them under her own name. They both get returns of 7% and they both plan on retiring at 65.

When Chris retires, he will have $895,000, but when Emma retires, she will only have $550,000. It is nothing to do with the returns, but just that Emma will have paid $340,000 more tax than Chris.  To make up the difference, Emma would need to get returns of around 15% which is a bit like chasing rainbows.

But wait, that’s not all. Emma will continue paying tax on her investment income after she retires. However, once Chris moves to the pension phase in Super, any income or future earnings will be tax free.

So yes, there are downsides to Super, but it is still the most tax effective way to fund your retirement.

If you would like to review your super or would like help choosing which super fund to use, book a chat via the link below. Alternatively contact us on 0417 034 252 or at

About the Author
Phil Harvey is an independent financial adviser. In 2017 Phil set up his company Construct Wealth to help clients best manage their finances so they focus on what is important to them. He is a founding member of the Profession of Independent Financial Advisers and a tax financial adviser, registered with the Tax Practitioners Board.

General Advice Warning
This advice contains general information. It may not be suitable to you because it does not consider your personal circumstances. Phil Harvey and Construct Wealth are authorised representatives of Independent Financial Advisers Australia (AFSL 464629)