If you’re well progressed on your retirement savings journey, it’s worth assessing if a self-managed super fund (SMSF) may be a suitable option for you.
There is a broad appetite for SMSFs with 28,000+ funds being established last year[1]. However it’s important to identify whether it’s right for you, before taking the next step.
SMSFs can be a great way to seize investment opportunities and to take control, but they do require time, effort and know-how. If you don’t have the time or interest in actively managing your superannuation, SMSFs are likely not for you.
Here are some of the key factors to consider when weighing it up.
What are the benefits of having my own SMSF?
Research shows that the leading reasons for people to set up an SMSF are to exercise ‘more control of my investments’ and ‘investing in property through super’.[2]
Due to the oversight and personal involvement involved, you will undoubtedly become more aware, engaged and well versed across superannuation policy more broadly, and specifically, tracking your nest egg. And greater engagement can only be a positive thing – whether you’re starting out or knocking on the door of your golden years.
Aside from this, SMSFs have access to a broader range of investments than in other types of funds including residential, commercial property, and a broader range of exchange traded funds, collectibles, term deposits and direct shares. SMSFs can also access investments like derivatives to help you to address risk.
Depending on your personal circumstances as well as your investment choice, you may have the potential for tax advantages in your SMSF.
Financial considerations
It’s important to acknowledge there will be establishment costs. This includes a cost to establish the SMSF, as well as administration, auditing, tax returns and investment fees.
If you choose, you may like to seek professional support. Depending on your level of expertise, and your appetite to either take on or delegate certain responsibilities, you may like to consult with a financial adviser, accountant, stockbroker and/or actuary to help you best manage your SMSF.
While there is no minimum amount needed to establish an SMSF, it’s widely accepted that under a certain balance the SMSF is unlikely to be as efficient when compared to other funds.
While this depends on level of fund size balance and comparison against alternatives, ASIC notes that the point at which it starts to become efficient is around $200,000.
Do I have the time?
Time allocated to an SMSF can vary from person to person and will depend on what type of investor you are and how active you choose to be when managing your SMSF investment portfolio.
However, regardless of whether you are a full delegator or totally hands-on, you can expect to spend some time each month managing your SMSF.
Research from Investment Trends shows that SMSF trustees spend on average nearly eight hours per month.[3]
If you don’t feel you have the time to dedicate to an SMSF each month, it’s likely not a suitable option for you in the long run, or not for right now.
What’s involved in ‘self-managing’ an SMSF?
As an SMSF trustee, responsibilities can vary from researching and choosing investment options, to tracking the strategy, managing valuations when required, and staying on top of changes to super regulation, which may affect your trustee responsibilities.
When you run your own SMSF you carry out the role of trustee which carries legal obligations.
You and your fellow trustees will be responsible for the administration, compliance, development and overall maintenance of the fund. This point cannot be overlooked.
You must also be diligent and keep comprehensive records, including managing an annual audit and arranging and revising any insurance which may include income protection. And importantly, only using the fund for retirement benefits.
Also consider an exit plan, as not everyone wants to manage their SMSF forever. So you need to factor in a strategy for if and when it will be wound up.
Do you need support?
So if you meet the criteria and think an SMSF could be suitable for you, consider the benefits of consulting with a professional at the outset and also along the way.
Importantly, being self-managed doesn’t mean you have to go it alone.
Ultimately the choice of how to invest and how to structure the fund is a very important question that you should consider.
If you don’t currently seek professional support, you could consider talking with a professional adviser who can discuss the options available to you. They will work with you to understand your goals and objectives and provide you with a recommendation that is aligned to those outcomes.
Bryan Ashenden is head of financial literacy and advocacy at BT Financial Group
[1] ATO, Self-managed super fund quarterly statistical report – December 2017
[2] Investment Trends, SMSF Investor Report, Addendum (Mar 2017), p33
[3] Investment Trends SMSF Investor Report, Main Report, (Mar 2017), p12
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