What does it feel like to manage your own super fund? SMSFs give you the chance to use your financial skills and take charge of your own money, but beware of its costs.
The government actively encourages people to save up for retirement, and there are a myriad of superannuation funds in the market. These funds invest your income on your behalf, so that you will have gained a few decades worth of returns and retire comfortably.
A self-managed super fund (SMSF) is a private superannuation fund that you can manage yourself, rather than putting part of your income into an industry or retail superannuation fund and letting others invest on your behalf. Once you set up a SMSF, your fund can have up to six members, often part of the same family. All members are trustees of the fund and are responsible for investment decisions relating to the fund.
SMSFs offer many advantages for those who are comfortable making their own investment decisions and have adequate financial expertise. People are often attracted by the independence SMSFs provide and the wide range of investment options that you can choose from. It offers greater flexibility to the fund member, as you can tailor it to fit your specific needs, something you don’t get with other superannuation funds where you choose between certain package options such as growth and balanced. Additionally, you can pool your SMSF with that of other people, opening up more investment opportunities.
However, SMSFs have their disadvantages. When you manage your retirement savings yourself, you shoulder 100% of the responsibility for your fund’s performance. If it does not produce desired returns, you are personally liable. You would also need to be familiar with tax laws and legislations related to your fund. SMSFs also tend to have high set-up costs and ongoing fees such as compliance and auditing. In 2018-19, the Australian Taxation Office found that total expenses related to managing SMSFs were $15,472 on average. These factors mean it requires a lot of time and effort to run your own fund.
So, SMSFs are appealing to those who are prepared to accept their costs and prefer the independence and flexibility their offer. They are a great tool, but are not suitable for everyone. What are your views on SMSFs?
Disclaimer: This content has been prepared by F3 for the sole purpose of education and is not intended to be financial advice. For financial planning advice, you should consider your personal situation and always seek professional guidance.
