The global financial crisis sent many investors into shock as they watched the value of their superannuation funds deteriorate to levels never imagined. Given what occurred, it is easy to understand the appeal in moving money out of traditional unitised superannuation funds and into customised self-managed superannuation funds (SMSF), where you have complete control over your investments.
After this mass migration to SMSF structures, around 40% of all super money is now held in SMSFs and the rate of attrition is still growing at around 7-8% per annum.
What is most important is that you get savvy about investing. Whether the money invested is within or outside of your super, you need to know what to do to grow your nest egg. Don’t assume that someone else is going to take care of it for you, or provide for you in retirement.
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Governments continue to lift the threshold limits for the aged pension, so by the time you retire it may not even be around. The sad reality for many women, more so than men, is how the statistics indicate that the level of super savings will be well below what is required to live comfortably in retirement. Given this, you need to work harder on your super.
If this means you need to look into setting up your own SMSF, then be sure to do your research. To assist you I have put together some of the pros and the cons around moving to a SMSF structure.
- Greater control over your investments – you have choice over what, when and how you invest. SMSFs allow you to invest in different assets including holding direct property and shares.
- Control over the tax position of the fund – this means there is an opportunity to benefit from tax concessions.
- Fund value is only impacted by your decisions – compare this to a commercial unitised super fund where the actions of the members will have an impact on the value of your units.
- Cut costs – do your research, it could be cheaper to run your own SMSF when compared to the cost of your commercial fund.
- Estate planning – can be simplified and also if all of the family are members of the one SMSF on the death of one member the other members may receive tax benefits.
- An incentive to build your knowledge – you will be investing in your future when you invest in your own education.
- Your SMSF can be managed from anywhere if you choose to travel.
The cons may include:
- More time involved – I see being more active with your investments as a pro, however, some people may prefer a commercial fund where they can set and forget.
- Uneducated decision making – some SMSF trustees may fail to seek the appropriate level of education to suit their investments of choice.
- Initial learning curve – establishing your SMSF doesn’t have to be a huge challenge. Many SMSF establishment services providers, including Wealth Within, supply information to get you started.
- Running costs may increase – a SMSF must be audited each year by a qualified practitioner, you need to compare these costs to the fees you pay for your commercial super fund. Accounting, taxation and the audit fee for a SMSF can be around $1200 per annum.
- Government regulation – this is subject to change and would be outside of your control.
- Life insurance – one of the advantages of a commercial fund is that life insurance is provided at much better rates than the ones you may be able to negotiate on your own.
Know the answers to these four questions and you are heading in the right direction:
- Do I have the knowledge or ability to run a SMSF, and if not where do I find it?
- Will I need to employ a professional to complete tax and regulatory returns?
- Do I have enough money to justify investing?
- Who will I employ to get me started in setting up a SMSF? Compare the costs.