Should I set up a Self-Managed Super Fund?

Self-managed super funds (SMSFs) have continued in popularity, growing in numbers over the past several years. In June 2014 there were 520,000 SMSFs. These numbers increased to just under 600,000 in March 2019.

Whether or not a SMSF is the right superannuation set-up for you comes down to what you are wanting from your super and your capacity to manage your fund on a regular basis.

There are advantages and disadvantages in managing your own super and, depending on your circumstances, these can weigh more heavily on you than the next person.

What do I need to manage in a SMSF?

Having a SMSF is a major financial decision which requires planning and management of your fund. Some of the things you will need to do are:

  • Make investment decisions for your fund, including formulating an investment strategy that you can regularly review and update to suit your needs
  • Understand and ensure you are complying with superannuation and taxation laws
  • Understand restrictions on the types of investments you can and cannot make with a SMSF

An SMSF must be run for the sole purpose of providing retirement benefits for the member and/or their dependants. When considering whether you should set up a SMSF, you should consider the reasons why you want to manage your own super.

Avoid setting up an SMSF for the following reasons:

I want to access my super early

There are scam promotors who claim they can help you gain early access, or ‘unlock your super’, for a SMSF set-up fee. You should be aware that it is illegal to access your super before the age of 55, except in very, very limited circumstances.

I want to buy an investment property

Setting up a SMSF to buy an investment property that is being promoted to you, usually through a limited recourse borrowing arrangement (LRBA), is a strategy I have rarely seen turn out to the advantage of the investor. While there are many promotors of investments properties with willing lenders wanting to sign you up, this strategy is not straightforward and needs careful consideration.

Everyone else has one

You may have heard your friends, relatives or co-workers talking about their SMSFs and making it sound all so wonderful that you worry you may be missing out on something everyone else knows about. Fear of missing out (FOMO) can be a strong motivating factor, however it is never a good enough reason to base major financial decisions on.

SMSFs take up time and effort to manage. If you are disorganised with paperwork and deadlines, are time-poor, or do not have a strong understanding of investing and finances, SMSFs may not be for you.

I won’t have to invest that much anyway

There are fixed costs to set up and run an SMSF. I would not recommend to anyone with less than $300,000 in their fund to set up an SMSF. A good, more reasonable amount would be $500,000. Having any less super than this would outweigh the cost benefits of having an SMSF.

Do set up an SMSF for the following reasons:

I want to be in control of my super

Having a SMSF gives you the ability to directly and actively manage your own super, meaning you can potentially maximise your returns for your level of risk whilst minimising taxes and other expenses. The level of personal investment control you have with an SMSF is substantially higher than any other type of super fund.

I want broader investment choices

SMSFs offer a broader selection of investment opportunities, including direct equities, managed funds and a variety of overseas and alternative assets.

If you have the right attitude, reasons, skills, financial resources, time and health to manage it, an SMSF could be a profitable way to fund retirement for you.

If setting up a SMSF is something you have been considering, arcinvest can assist you in evaluating your financial situation and determining if this is the right super type for you. Contact arcinvest at [email protected] or on 3398 4888 to book your complimentary consultation.

Posted in Superannuation.