Your business is under way and you’re proud of your progress.
But the demands on your time and capital are endless: Salaries, taxes, raw material, marketing. How do you prioritise? Your budget is your discipline, but it seems that that, too, is running away with you.
We’re not blind to the challenges and risks of entrepreneurship. We take off our hats to those bold enough to take the plunge to be their own boss. It takes courage and raw guts, and often the rewards are not immediate.
What we do know, is that entrepreneurs often put themselves at the back of the row. Their business and their employees come first. We want to make the case for these brave innovators to think about themselves, too.
Retirement may be the last thing on their minds. They may also think that their business will be so successful that it will look after them better than any retirement investment.
That may be the case, but if they set off on their own at an early age, that security must still prove itself. An entrepreneur takes enough bold steps as it is; they don’t have to take another gamble with their future, and that of their family, too.
What does your retirement dream look like? Do you want to retire at 60, or earlier? Like with your business budget, you can plan for this, and the kind of income you would want to have then. If you’re closer to retirement, and your business more established, you can always adapt your plan.
The wonderful thing about a retirement investment such as a retirement annuity is that it is money you lock away: In a way from yourself and the ever-alluring option of using personal money for your business.
But it also locks away money from creditors. In fact, according to legislation, creditors can grab only R3,000 per year of retirement money. This means it is a suitable place to invest capital.
Yes, indeed, retirement annuities are still inflexible investments in the sense that you cannot access your capital.
But soon, with the implementation of the two-pot system, you will be able to access up to a third of your contributions every year. That will also make it a good haven for additional money, apart from your retirement savings, as a kind of emergency kitty.
A retirement annuity is also an easy decision in terms of the tax rebates you get. In a way, government is sponsoring a fat chunk of your retirement. For every amount you invest, you get back a rebate in line with the tax rate you normally pay.
This means, if you invest R10,000 and your marginal tax rate is 30%, you get back R3,000 when you submit your tax return. So, it costs you only R7,000 to get an investment of R10,000 – which other discount compares to this?
Because you are investing money you haven’t paid tax on, it lowers your taxable income. Plus, you don’t pay tax on the growth, like with other investments. You can in a way view this as additional growth on your investment.
Look at retirement savings as an opportunity to diversify. You can choose a fund that suits your risk profile perfectly. On some retirement annuities, you can take out capital and growth guarantees.
You can also look for one that will keep paying your contribution if you no longer can, because of illness or death. It costs a fraction of the contribution and is an extra safety net for your family.
You will also nominate beneficiaries for your retirement annuity. This means the money will pay out to your loved ones almost immediately, and they don’t have to wait for the cumbersome process of finalising an estate before they are looked after fully.
Estates with businesses tied to them are often not the quickest or easiest to finalise.
For a small business, a group retirement product, with a separate retirement annuity for each employee, may be an attractive benefit.
Many provident and retirement funds require a minimum of 15 members, and a group retirement product can solve the needs of an entrepreneur with fewer employees.
Our experience has shown that hardly anyone has regretted investing in their retirement. When the end of your work life comes, you will be delighted that you did it, too.
*Pieter Albertyn, head of Product Solutions at Momentum Investo.
**The views expressed here are not necessarily those of IOL or of title sites.
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