The decision to self-manage your own super fund can be easily clouded when you need to navigate through a maze of fiction, fact and speculation. Once you’re able to sift fact from fiction though, the possibilities and benefits a self-managed super fund can inherit are significant.
Managing your own super can be a big responsibility though so it’s always recommended to seek investment advice prior to ensure there’s a high level of understanding before you jump into it. Super is saved for your retirement so there are rules about how it’s managed and when you can receive it that need to be closely followed. Along with the density of self-managed super funds (SMSF), they also come with a great deal of flexibility in retirement and it’s the control over superannuation investments that individuals are attracted too. So you don’t get stuck believing the myths about SMSF, we look at few to bust and provide some great tips and factors to consider in your decision making process.
1. You can only set up a SMSF if You Earn a Fortune
Thankfully, you don’t need to be a millionaire to take advantage of SMSF, nor do you even need to be earning a huge amount above the average yearly income either. Although you do need to be earning a higher income than those in traditional retail funds, more importantly, it’s how much money is in the fund itself – a good rule of thumb is $200,000 as a total amount. If your super balance is above this figure, then switching to a SMSF will be a very cost-effective decision. However, in saying this there are becoming a number of affordable options available and it can be an economical option for balances as little as $50,000.
2. It’s Too Complicated – You need to be Highly Intelligent to Manage Your Own Super Fund
SMSF are not hard to run or set up, whilst you do need to know what you’re doing and follow the rules laid out, you don’t need to be a finance expert to open one. These guidelines can be learnt by anyone willing, and there are investment professionals that can help you in the process. In July 2013, new research showed that 68% conducted their own research whilst 77% were prepared to pay for value added advice.
The rules that govern superannuation are complex and continually evolving. Minor errors can lead to major consequences so having a qualified professional on board is a worthwhile investment to help point you in the right direction, even if only initially. 24% of people still believe SMSF’s are too complicated, but, as more financial advisors provide value added advice – there is a significant shift in how people are approaching their financial decision making and becoming aware of the benefits are SMSF can offer them long term.
3. Only a Small Amount of People Have SMSFs
Initially, this may have been a true statement but the DIY super fund method has become increasingly popular. In 2009-2010 there were around 456,000 SMSF’s and $418 billion in assets, with approximately 867,000 members in the SMSF sector. In Australia, the SMSF sector is the largest in the industry. These figures, and the DIY way is still growing with individuals loving the idea of being in control of the super, and playing an active role in investing their funds for retirement. This makes retirement stages all the more rewarding.
4. My Employer Looks after My Super, I Can’t Change Anything Now
Would you allow your employer to decide what bank you should use or the house you’re going to buy? No, didn’t think so! An employer suggesting or using their company super account is simply that – a suggestion and you don’t have to accept what they give you.
If you’re super is already with the company’s choice of fund, it is still possible to take control of you own super. Once you have done your research and spoken with a financial advisor, let them know your decision.
5. Anyone can be a Trustee of a SMSF
Almost true – anyone can be a trustee unless of course they are a disqualified person. If you are acting as a trustee while under disqualification, penalties can apply. If you’re unsure, it’s best to check with your financial planner for advice.
The Risks of SMSF’s
Unless you invest your super in 100% cash, there is always a risk that you may suffer a loss. Strong diversification and active management of your portfolio can assist in alleviating this risk and allow you to enjoy more of the benefits a SMSF has to offer.