Self-managed super funds (SMSF) have been gaining attention lately. It’s attracting retirees as an effective way to get better control over their finances and even gain tax advantages along the way.
That said, setting up a self-managed super fund is not for everyone. To determine if it is right for you, this article shares a list of questions to ask yourself to assess your needs and capabilities.
- Why Do You Want To Set Up A SMSF?
Most prospective members are attracted to and want to set up SMSF because of the terms ‘control’ and ‘choice.’ However, this isn’t necessarily the only description of SMSFs. The ability to choose an investment or have more control over your funds is a feature that’s actually available in other types of superannuation funds.
Plus, if the reason for setting up an SMSF is because it’s gaining popularity, then think again. It comes with several responsibilities and obligations, which points us to the next question.
- Do You Know And Understand Your Responsibilities And Obligations?
From its name, SMSFs are ‘self managed’. So, are you prepared for the responsibilities and obligations of managing your very own super fund? One of the most common comments for new SMSF trustees is that managing their own fund takes more knowledge and time than anticipated.
For instance, you’ll be responsible for doing thorough research into your investment options and planning for a suitable investment strategy. You’re also responsible for the performance of your investments.
Also, depending on the asset you choose, you have other obligations to consider. For instance, if you’re investing in real estate properties, you’ll be responsible for maintenance, securing tenants, and rent collection.
In addition, all SMSF trustees will be responsible for their super fund’s compliance, auditing, and tax filing. However, if you want to reduce the burden, you can also hire an expert. Matthew Rutter, a finance and accounting expert, says that hiring a self managed super fund accountants can help handle the administration, compliance, and maintenance of your SMSF. With extensive knowledge and experience, an SMSF accountant can help you respond quickly to any changes in regulatory requirements and ensure taxes are complied with.
- Are You Setting It On Your Own?
Unlike traditional super funds, an SMSF allows you to combine your super fund balance with up to three people. Each trustee can have their designated assets within the super fund; however, the balance can be invested as a whole. This allows you to invest in higher-value assets.
Take note, however, that sharing investments with other people also comes with certain risks. You all share the responsibility of managing the super fund and preparing for situations like bankruptcy, death, or if a member wants to close the super fund.
- Do You Have An Investment Strategy?
The key to a successful SMSF is a sound investment strategy. Having a well-planned investment strategy can ensure better management of funds and growing your super savings.
In addition, trustees should also be aware and up to date with changes and amendments to superannuation regulations. It’s important to consistently review your investment strategy regularly (preferably every year) and make changes as necessary.
- Do You Have Enough Money To Set Up An SMSF?
The industry recommended amount to set up an effective self managed super fund is AUD$200,000. However, it’s possible to start with less.
This specific amount makes the cost of running and managing the fund more competitive than other funds with the same amount. In general, the higher your super balance is, the lower your percentage fees will be.
In addition to the funds you’ll invest, you also need to consider the costs of running a successful SMSF to determine if it’s a cost-effective option with your current balance.
For instance, you need to consider the cost of moving your funds, timing out the market until your investments are re-purchased, and realizing the capital tax gains on the sales of your existing investments. Also, you need to consider any potential loss of insurance coverage as well as the loss of possible benefits on group insurance.
Takeaway
The popularity of self managed super funds has made it one of the fastest-growing investment vehicles in the superannuation industry. For most people, the ability to manage your own fund offers lower fees, improved performance, better flexibility in where to invest money, and more control over your retirement income.
While appealing, make sure to assess yourself first and answer the questions above to determine if self managed super funds are right for you.
Leave a Reply