Is self managed super worth it?

By Greg Major, Financial Advisor at Blueprint Wealth*

Self-managed super funds – or SMSFs as they are commonly referred to – are a growing trend in Australia as more and more Australians want to be in the driver’s seat on the road to investing for retirement.

The number of Australians who are opting to set up their own SMSF is continuing to grow, with the number of SMSFs increasing by 27 per cent to 557,000 in the five years to 2014-15.[1] In general, the ability to borrow within an SMSF for investing in assets, such as an investment property, and the positive returns being achieved on these investments, has been of great appeal to many people.

However it’s important to realise that while SMSFs might be an option for some people, they are certainly not for everyone.

So how do you know if an SMSF is right for you?

While it has been the ‘flavour of the month’ for some years now, there is a lot you need to understand before jumping on the bandwagon. Too often we see clients with an SMSF which has either few or no assets held within it at all, or in some cases only a bank account with cash and no other form of investment, making it a pointless – yet onerous – vehicle for investing for retirement.

However, for some people an SMSF is an excellent tool and can be very worthwhile – after all, it offers more control over the money you will have to retire on. You make all the investment decisions and can get your super working for you, including accessing unique tax and investment opportunities.

That being said, it’s something you need to go into with your eyes wide open, knowing that there is the challenge, time and cost of managing the administration and compliance of an SMSF.

Here are three important questions you should ask yourself before considering leaping into an SMSF:

  1. Do I have the money? According to the Australian Taxation Office, it costs on average $6,750 a year to run an SMSF with a fund balance of $500,000 (1.35 per cent of the fund balance). [2] So if you are just starting out with only $20,000 in retirement savings to invest, your nest egg could all but disappear within a few years. On the other hand, if you have built up say $200,000 or more for retirement, it may be worthwhile investigating if an SMSF is right for you – and one of the best ways of doing this is speaking to a professional financial adviser.
  2. Do I have the expertise – or expert advisers who are up-to-date in this area? This is something that can’t be understated as there are harsh penalties for breaching SMSF rules which are constantly changing.  As a trustee of the fund, the buck really stops at you. It’s your obligation and responsibility to ensure the fund complies with super and tax laws, including reporting on its operation to the ATO. You might be confident about calling all the shots about your investments, but if you are time poor you will need help with the ongoing administration and compliance required to run an SMSF. It’s a complex area and you want to make sure you’re getting the right advice and support.
  1. Do I have enough diversification in my portfolio – or do I have a plan to build diversity? SMSFs have some big ticks in the box, but one of the keys to a healthy SMSF investment strategy is diversification. It’s important to maintain a diversified portfolio – or at the very least have a plan to build diversity into your portfolio over time. Asset classes perform differently at different times so it’s important to do your research and ensure you have the mix right.

In essence, SMSFs are best suited to those people who have the money, the time and knowledge – or who have the support of extremely well-qualified financial advisers to run them. They can be a powerful way to make your own investment choices and build your super to live the life you want in retirement, but do your homework and seek advice first.

If you are unsure where to begin, take our 30 second SMSF quiz.  At Blueprint Wealth we offer financial advice that is right for you, no matter what stage of life you are at. Contact us today to set up a plan that is right for you.

*Blueprint Planning Pty Ltd (ABN 78 097 264 554), trading as Blueprint Wealth, is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Ltd, Australian Financial Services Licensee and Australian Credit Licensee.

This article contains information that is general in nature and does not take into account your objectives, financial situation or needs. Therefore, before making any decision, you should consider the appropriateness of the advice in regards to those matters.

[1] Source – ATO SMSF Statistical Report, September 2015

[2] Source – ATO 2013-14 Statistical Review of SMSFs