Retirement: a self-employed business owner’s guide

 In Blogs

Over the last couple of decades, working for yourself has become increasingly popular. In fact, it’s the choice often promoted by governments to solve job scarcity, and millennials who hunger for greater freedom. The days of finding a job within a company that is stable enough to look after you forever – well, until retirement – is becoming increasingly rare. Even those that have such jobs are eyeing the possibility of self-employment and jumping ship in mid-ocean.

Working for yourself is always attractive. Sometimes a little over-romanticised, but nevertheless often preferable to the secure but boring grind of daily office life. Whether you run a small business with one or two employees or you freelance your skills entirely on your own, the necessity of retirement planning for yourself can become a bugbear as the years past. At some stage, once established in your chosen work, you need to gather your thoughts (and your finances) and make some sensible choices for the future.

Why retirement should be your fundamental business plan

  • Whether you are a single income earner or responsible for a micro or small business, you will no longer have the benefit of making monthly retirement contributions into an approved retirement fund. This is a sober fact which must be faced soon after you begin working on your own.
  • Your business may face cash flow challenges that will hamper your ability to sustain retirement fund contributions. In addition, the business itself does not necessarily provide security for retirement because you may not be able to sell it for the value you had foreseen years before. And indeed, your business might not last long enough to provide sufficiently in the face of rising costs. So it’s vital that you investigate options for a reliable investment vehicle.
  • One of the best option selections for a self-employed person remains a retirement annuity (RA).
  • A RA is a tax efficient option for people who wish to enjoy a certain standard of living during their retirement. With most retirement investments you are required to pay capital gains tax, but this is not the case with a retirement annuity.
  • Paying tax on your RA gains is deferred until retirement, meaning there is a larger tax free balance that will continue to compound over the course of your investment. You have the choice of making monthly contributions or a lump sum payment annually or both
  • A retirement annuity is also protected against any potential debtors if something goes wrong with the business.
  • Investing independently in a balanced portfolio is another option. Either way, start as soon as possible and build larger contributions as you progress in your business. It’s important to think about how you plan to achieve your goals. Consider the effect of taxes, and of tax deductions – sometimes that little convenience becomes an inconvenience when you want to withdraw your funds.

Where focus is required

Retirement planning should include: determining life span; estimated expenses – both personal and business; calculating after-tax returns; assessing your risk tolerance, and estate planning. For any retirement planning, the key is to start as soon as possible. In this way, you take advantage of the power of compounding.

Age and retirement funding:

The initial focus should be on your current age and expected retirement age. The longer the time between the present and your date of retirement, the higher the risk level your portfolio can withstand. If you’re young and retirement is decades away, you can hold your assets in riskier investments, such as equities. Though there will always be volatility, equities have historically outperformed other securities, such as bonds, over long time periods.


When you reach retirement, you may have some long-held ideas of what you want to do. But you will need to hone those expectations to fit realistically with what you have been able to secure for yourself. The size of your portfolio will define your lifestyle; people are living longer and obviously want to enjoy their retirement but savings and investments need to have been planned accordingly. Retired people have more time to travel, go sightseeing, shop, and engage in other expensive activities. If you have these pleasant visions of your future, then you must take action today.

Be prepared for the larger commitments:

Sometimes expenses may arise as you are approaching retirement, such as buying a new house, or paying for your children to go to university. If you keep track of your investments, and update your plan once a year, you can keep these factors in perspective and within your budget.

Risk aversion:

You need to make sure that you are comfortable with the risks being taken in your portfolio and have a good idea of what is necessary and what is a luxury. Don’t react too swiftly to market variances – what may be looking dismal this year may be next year’s best performer.

Estate planning:

Life insurance is an important part of an estate plan, and the retirement-planning process as a whole. Having both a proper estate plan and good life insurance coverage ensures your assets are distributed in a manner of your choosing – and your family will not experience financial hardship following your death.

On your own…with a financial advisor:

As a freelancer, it’s wise to get professional financial advice to ensure you’ve covered all your bases. A financial adviser can advise you on the best types of investments. Running your own show means managing your retirement funding does not rest with an employer but is your responsibility – you are free to choose and change as you please. And this may ultimately create greater certainty and wealth in the longer term than you might realise.

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