Self-employed retirement plans: Tips to secure your future

Self-employed retirement plans: Tips to secure your future

When you are self-employed, retirement plans often get overlooked. Make an appointment with a financial planner and set aside time to become aware of your retirement savings options.

Company employees often belong to their employer’s retirement fund, and as such have access to retirement benefits, and in some case also life and disability benefits. Not so the self-employed entrepreneur, which is why this article about self-employed retirement plans exists.

The business of being a self-employed entrepreneur is absorbing and time consuming

It is easy to neglect one’s personal affairs until they become urgent. Retirement plans are by their very nature long term and so they seldom seem urgent – until it is almost too late. It can often happen that three, five or even ten years pass without even thinking about saving for retirement. The problem is that in that time you may experience a life-changing event such as death or disability without having life or disability cover.

If you are self-employed or run your own business it is paramount that you appoint someone to attend to these matters on your behalf.

Self-employed retirement plans – what are your pressing needs?

There are two separate areas of equal importance. You need to ensure that:

  1. You have self-employed retirement plans sufficient to retire according to your preference.
  2. You have adequate life and disability cover


Self-employed retirement plans – saving enough to retire according to your preference

How much you need to save will depend on your current age, how much you earn, the age at which you wish to retire, the lifestyle plans you have for retirement. and finally, realistic anticipated investment returns.

Cash flow can be uncertain in small- and medium-sized businesses, so it is better to use flexible investment options as opposed to policy-based investments which lock you into paying a certain premium for a fixed term. This is particularly important with regard to the use of flexible retirement annuity options. In terms of current legislation, you may contribute up to 15% of your non-retirement funding income towards a retirement annuity. If you are in the 40% tax bracket you will receive a tax break of 40% of the amount invested. In other words, for every R1,000 invested you will receive R400 back from the taxman.

Adequate life and disability cover

For the self-employed, life and disability cover becomes even more important. The unforeseen consequences of an accident or health issue that interfere with your ability to run your business, or continue to work in your chosen profession can wreak havoc in every area of your life. So, although insurance is often considered a grudge purchase, it should also be viewed through a different lens. What is the value to you of peace of mind? Life and disability cover can buy you financial breathing space and options while you plan your way out of difficulty.

Business owners may also apply for business overhead cover, which may help cover business overhead expenses and keep the business running should there be an unforeseen event. In much the same way that you receive a tax deduction for the retirement annuity, your income protection premium (which covers you in the event of disability) is also tax deductible.

Self-employed persons or business owners have slightly more scope for deducting expenses incurred in the production of income. However, it is important that you keep accurate records of any of these expenses for tax purposes.

In summary – self-employed retirement plans

If you’re self-employed, retirement plans are a product of proactive planning. Many self-employed entrepreneurs are so consumed with running their businesses profitably that they delay thinking about retirement options. Retirement savings are a long-term project, and so by the time they become urgent, it’s too late.

My advice is to engage an independent, fee-based certified financial planner who is focused on your best interests and can provide impartial advice.

This will allow you to build up your savings and plan for your future, giving you financial independence. If you do not have a CERTIFIED FINANCIAL PLANNER®, visit the Financial Planning Institute website to select one.

Debbie Netto-Jonker CFP®, is the founder of Netto Invest and was Financial Planner of the Year in 2001.


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