If there’s one thing you need to be great at to be a successful entrepreneur, it’s multi-tasking. When you launch your business venture, whether you are going it alone as a small trader or setting up your own company, the only person you can rely on to get things done is yourself.
That often means big workloads, steep learning curves, juggling what feels like a dozen priorities at any one time – generally, just having a lot on your plate. And that can mean, even for the most diligent of multi-taskers, the odd thing slips off your radar. Like setting up a pension or planning for retirement.
Research has found that a quarter of all people of working age in Ireland don’t have a pension plan. It’s widely believed that the figure for entrepreneurs, who don’t have ready-made company pensions as an option, is much higher.
Thinking about retirement can feel like one more thing to add to an endless to-do list. But it doesn’t have to be as imposing as you fear. Here are some key things you need to consider now to start taking the right steps forward.
Start saving now, however small
Anyone who has recently set up a business is understandably keen to reinvest profits back into growing their company. There’s a tendency to think that saving for retirement can wait.
In fact, the exact opposite is true – it is best to start saving as early as you can, and not worry too much about how much you are putting away. The more your business grows, the more revenue it generates, the more you will be able to put aside for your retirement. But leaving it too long to get started can leave you with too much ground to make up in later life. If you haven’t already, start right now and get into the habit of saving.
Get tax benefits from your company
Another reason to start paying into a pension as soon as you can is that it is a very tax-efficient way of saving. Sure, you are locking away money for the long term. But the payoff is that you can reduce the amount of tax you pay in the present.
In fact, as an entrepreneur, you can get a tax benefit from setting up a company pension scheme in two ways. If you pay yourself a salary and pay into the scheme from that, you can reduce the amount of Income Tax you pay. But the contributions made into the scheme from the company also reduce Corporation Tax.
Using your business as a pension fund
One common approach many business owners take to retirement planning is viewing the company itself as their nest egg. When the time comes, their plan is to sell up and live on the proceeds. However, this also requires taking a long view. Selling a business, and especially selling a business for a substantial sum, is far from straightforward. It can take years of hard work to build an operation that is profitable, stable, successful and set up in a way that is as attractive as possible to would-be buyers.
How you use the proceeds from a sale also requires careful consideration. If you aim to try to live directly off the proceeds, you are taking a gamble that the amount you get will be sufficient. A safer option is to sell with a view to investing what you receive, but then you might need a period of 10-plus years to see any substantial returns. These are all things best discussed with a pensions and investment specialist to guide you through your options.
Diversifying your investments
Finally, entrepreneurs understandably always want to prioritise reinvesting profits back into their business in the hope that they will achieve a snowball effect. Of course, the more successful your business is and the more revenue it generates as a result of your hard work and continuous investment in it, the more wealth you can accrue and the more you can save for retirement.
But diversifying your portfolio is a core principle of any investment strategy, and from the point of view of your personal finances, it should also apply to how you approach profits from your business. By putting everything back into your company, you are heaping all your eggs in the proverbial one basket, banking everything on continued success. To cover potential risks and optimise your long-term financial position, it pays to start building a broad portfolio as soon as your business starts returning profits.
Contact our Financial Services team to talk about how to kickstart your pension and retirement planning today.
