It’s dangerous to rely on your business to fund your retirement
Published on 26th October, 2022 at 04:47 pm
You wouldn’t take the risk of gambling your livelihood away – but relying on your business or other assets like your home as your sole retirement income solution isn’t much different. Find out why experts suggest a combined approach to secure your financial future.
Reading time: 3 minutes
In this article you’ll learn:
- Why you shouldn’t rely on your business or home to fund your retirement income.
- How the state of South African retirement planning impacts your wealth.
- The importance of partnering with a trusted financial intermediary when planning your retirement income.
The state of South African retirement planning
Many South Africans are planning to rely on the sale of their business or home to fund their retirement. A Sanlam Reality survey conducted in conjunction with TaxTim in 2019 suggests that business owners are more intent on drawing lower salaries from their businesses now in order to reap the future benefit of growth, so that it can one day be cashed in to fund their retirement.
The problem with the plan
It lacks portfolio diversification
As Suzanne Pope, a business development manager at Glacier by Sanlam, says, relying only on the sale of a single asset like your house or business to fund your retirement is a dangerous bet to make with yourself. “Markets could plummet and property values could drop. If the business crashes or is liquidated, the retiree will sit with no capital for retirement and will not be able to retire,” says Pope.
There is no one-size-fits-all solution when it comes to choosing a sustainable retirement income solution. Read this to find out more.
Even if you can sell, you’re not guaranteed your price
Having a solid retirement plan in place, and your house, business or other asset as an additional investment, is better, as you’re not dependent on the sale of the asset, says Pope. “But ultimately the sale of the asset depends on the market conditions at the time of the sale, and on the buyer.”
If you’re relying on your business to fund your retirement, there are further tax implications:
- “You will not receive the annual tax deductions you could’ve received for your own contributions into an RA (retirement annuity),” says Pope.
- The sale of your business will be subject to capital gains tax (CGT).
Are you saving enough for retirement? Use our calculator to find out.
The value of partnering with an intermediary
Running a business means that you need an expert by your side to help take care of your personal financial decisions. Your business can hold plenty of financial and personal value to you, but recognising that your retirement needs and your business’s needs are separate is vital to a functional retirement plan. A financial intermediary can assist in identifying the risks that could derail your retirement plan, and formulating a disciplined strategy that protects you, your family and your business.
Consult a financial intermediary before you take any action with your savings and investments.
This article does not constitute financial advice.
Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.
Sanlam Life is a Licensed Life Insurer, Financial Services and Registered Credit Provider (NCRCP43).
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