Are you an entrepreneur? These stats about savings may shock you

Published on 6th June, 2019 at 04:39 pm

As an entrepreneur it’s likely that you’ll want to put every cent you can spare back into the business. However this should never be done to the detriment of your personal financial security.

Sanlam Reality and TaxTim recently joined forces to conduct research on how individuals save for retirement and they made some interesting findings.

1. Salaried employees are saving more for retirement than entrepreneurs

“Overall, Sanlam Reality members who are salaried employees save a greater proportion of their income (16%) towards retirement than entrepreneurs (10%),” says Nathea Nicolay, head of product development and management at Sanlam Reality. “The national average is 12% net of admin and risk charges. Entrepreneurs therefore save less for retirement than both the salaried and average non-loyalty member.”

2. But entrepreneurs aren’t necessarily earning less

“However, through our research we found that although entrepreneurs drew lower salaries than employed users, other indicators, for example medical aid provisions, suggested they were on average as financially well off as their salaried counterparts,” Nicolay continues. Entrepreneurs contribute 7.9% of their income towards medical provision, whereas salaried employees only come in at 5.2%.

3. Entrepreneurs are planning for their business to be their retirement plan… and that’s dangerous

What many entrepreneurs choose to do is take lower salaries from their businesses in order to rather use the funds to further grow their businesses. “This suggests that entrepreneurs are investing much of their discretionary income into their business rather than into their provision for retirement savings in the hope of using the money earned from the sale of their business at a later stage to finance expenses during retirement,” explains Nicolay.

There are dangers to this model of course. “Entrepreneurs relying on their businesses as their retirement plan is dangerous because they have no safety net for retirement in the event that their business proves to be unsuccessful. Sanlam has often found that when key persons at small businesses retire or leave the business, the success of the business is at stake, which increases the risk of solely relying on business income for retirement provision.”

Nicolay suggests that entrepreneurs consider the importance of having sufficient provisions for retirement and be aware that although their immediate concerns relate to the success of their businesses, they also need to consider the possibility of business failure and the impact this can have on their retirement plans and their families.

So, how can you successfully save for your future while still trying to keep your small business afloat? Speak to a professional – a financial planner will be able to guide you and suggest a plan to kickstart your savings. Look into a high-yield, fixed-term deposit account, a long-term investment product, or an interest-bearing savings account.

Why did Sanlam Reality do this research with TaxTim? As a Sanlam Reality member, you have a free access to TaxTim – an online wizard that offers expert tax advice and assistance, helping you file your tax returns easily in a few clicks. Click here to find out more about your benefit, and how to make the most of it.