4 steps to investing for retirement if you’re self-employed

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By Aidan Freswick*

If you’re self-employed, the path to retirement might seem a bit more winding than for those with traditional employment and pension schemes. Without the cushion of company-sponsored retirement plans, the responsibility to secure your financial future rests squarely on your shoulders. 

A mistake that I often see made by successful business owners is that they try to manage their own retirement planning. And why wouldn’t they: if you’re successful at making money, surely you can do the same for your retirement?

Unfortunately, that’s not always the case. And when you’re gambling with savings that should see you through retirement, that’s a very risky strategy.

In the same way that the most successful entrepreneurs focus on doing what they do best, I believe that the most successful investors are those who lean on the expertise of investment specialists. 

Financial planners and advisors have specific expertise and insights that even the most ardent investor will struggle to match. But more importantly, we’re an objective, unemotional third party able to guide you to making the best decisions about your future.

So, if you’re self-employed and want to plan properly for the future, my advice is to find a suitably qualified advisor who’s judgement you value. Working with an advisor doesn’t mean you’re giving up control of your financial plan, you’re actually enhancing it by drawing on expert advice to optimise your returns. An advisor is also able to construct a financial plan with you and not necessarily for you. 

With that said, here are four actions that you can take to plan for the future, even if you don’t have a company retirement plan. 

Step 1: Why starting early matters

The saying ‘the early bird catches the worm’ couldn’t be more apt when it comes to retirement planning. Time is indeed your greatest ally, allowing your investments to compound and grow over the years. 

Starting early might seem challenging, especially when your business is consuming most of your resources, but even small, consistent contributions can make a significant difference in the long run. The key is to prioritise your future, even when it feels like you have a million other things demanding your attention.

Step 2: The power of retirement annuities

The availability of a wide range of retirement annuities (RAs) mean that you can get the same tax benefits and access to investments that any of the large retirement firms offer to corporate clients. RAs are easily accessible directly on investment platforms, or through your broker or financial advisor.

This means you can save in a disciplined manner, with the added benefit of tax deductions on your contributions if invested in a Regulation 28-compliant fund.

Reg. 28 guides asset allocation in retirement funds and RAs to try limit retirement savings losses because of over-exposure to any particular asset class. These limits are currently 75% equities; 25% property; and 45% international, which give you a good chance that your investments will grow over time.

All contributions to Reg. 28 funds are tax-deductible – up to 27.5% of your annual taxable income and an annual cap of R350 000. However, withdrawals in retirement are taxed as ordinary income, and normal PAYE tax rates are applied to your income drawdowns.

Step 3: Embrace budgeting and tracking

Discipline is key when it comes to building your retirement savings. Creating a budget that includes retirement contributions and sticking to it is essential. 

But it’s not just about setting it and forgetting it; regularly reviewing your investments and their performance is crucial to ensure you’re on track to meet your goals. Adjustments may be necessary as your financial situation or the market changes, but that’s all part of the journey.

Step 4: Invest wisely

Diversification is your best defence against market volatility. Spreading your investments across different asset classes and geographies can help mitigate risk and produce long-term growth. 

This is where working with a financial advisor can be invaluable. We can help tailor an investment strategy that suits your risk tolerance and retirement objectives, navigating the complexities of the market so you can focus on what you do best — running your business.

The journey, not the destination

Remember, planning for retirement is a continuous process that requires attention, adaptation, and sometimes, a bit of patience. But by starting early, staying disciplined, and seeking professional guidance, you can navigate the path to retirement with confidence. Your future self will thank you for the effort and foresight you put into securing a comfortable and fulfilling retirement.

* Aidan is a Registered Financial Practitioner™ at Brenthurst Wealth Bellville [email protected] 

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