Not ready for retirement?

by TK
retirement early

The phrase “retirement” invokes many emotions. While most baby boomers are likely to be dreaming of more time on the golf course or booking a cruise, you are perhaps fascinated by buying a business. Crazy? Perhaps not.

For those at preservation age, you will soon have access to your retirement funds. A growing number of people at this stage are taking control of their finances and buying themselves a brand new later-life career in the form of an established business.

Maybe you’ve been retrenched and are having difficulty finding a new job. Or perhaps after a brief period of retirement, you feel rejuvenated and ready to start afresh.

In addition to their life experience, seniors bring a large network of contacts to a business venture. However, running a business doesn’t always turn out as planned. Small companies are risky by nature, usually have voracious appetites for capital and are often susceptible to irregular cash flow.

Assuming you fulfil the superannuation condition of release, think about these questions before diving in:

·       How much capital will you need? Will you be drawing on your savings or relying completely on super? If you have super, think about the risks of putting all your eggs in one basket. Do the sums and work out an applicable balance.

·       Will you purchase a start-up or an existing business? Getting started from scratch means beginning small often with quite a lot of unknowns ahead. Existing businesses include customers, structures and processes. Regardless, your choice has to be guided by how much you’re ready and capable of putting into building and sustaining your brand-new venture.

·       Have you ever sought professional advice? In reality, you still need to consider retirement planning, taxes, insurance, and so on. They are essential at any time, but especially whenever you’re self-employed.

·       Are you compliant with super rules? Self-managed super funds (SMSFs) exist to protect the long-term benefits of members. As a result, all SMSF investments should meet Related Party regulations. This means that you are not allowed to use SMSF cash to purchase a business. This is unless you or another fund member intends to work and derive an income from it. There may very well be different choices out there and that is why it is imperative to seek specific advice first. Retail or industry funds typically limit lump-sum withdrawals. Access to and the tax applied to a lump sum withdrawal will depend on your age and the taxable elements of your super. Your super fund can inform you how much in your account is taxable or tax-free. Although a lump sum withdrawal could also be tax-free, if you use that money to earn income, that income can be taxed at your marginal tax rate.

If your business pays you an income, it’s imperative that you speak with your financial adviser about super as significant restrictions apply to contributions. These include an annual cap on concessional contributions of $27,500. It will affect how much you may re-contribute to replace the amount you’ve withdrawn.

Access to superannuation under 55 is subject to strict withdrawal conditions. The decision to buy a business should not be one of them.

·       Will you know when it’s time to give up? You most likely don’t need to take note, however, the Australian Bureau of Statistics (ABS) figures point out that 36% of small businesses fail in their first three years. For this reason, conducting due diligence prior to buying an ongoing business is essential. If things don’t work out as planned, throwing money at the problem won’t help. Will you know when to give up? Do you have an exit plan?

·       What about your succession plan? What will you do with the business when you retire? Sell? Pass it on to the family? You should plan for this crucial stage from the beginning.

Due to improved well-being and medical technology, Australians live longer. This is why a sound strategy for such an enormous leap later in life is more essential than ever. In spite of everything, if 60 is the new 40, then the story just hasn’t even begun to be finished!

It’s always wise to plan ahead to balance the life you want to live today with the life you want to live in retirement. If you or someone you know in your circle needs help or has a question, we are here to help.



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