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A week would not go by, that as a professional advisor, I am not asked ‘is a Self Managed Superannuation Fund (SMSF) right for me?’ I have some simple questions I ask to ascertain this:
a) Your age – this helps determine the likely risk profile and how much time is available to accumulate assets. Those in their twilight years with a good nest egg and lots of time generally are better to consider a SMSF. If you are raising a family, busy with work, it is often better to let others manage your super. Remember if you get it wrong, you will have only yourself to blame, and it is your future financial security that will be at risk.
b) The amounts of money currently held in super. If you have less than $100,000 in super, then the math simply doesn’t work to manage your own fund. Generally the audit and accounting costs of a SMSF run at about $1500 to $2000 per year. They don’t change as much as the fund gets bigger. So on $100,000 this is 2%. On $200,000 it is 1%. Industry funds run at about 2%.
c) What are you trying to achieve – do you want control because you lack confidence in others? Do you think you can do a better job?
d) What is your plan – Do you want to salary sacrifice large sums to grow your super, but want to control it? Is the intention to buy property and gear the fund? For example you might be intending to purchase properties at mortgagee sales that will make your funds assets grow quickly.
Often it is this last question that is the decider. It is my view that superannuation is a tool that should be exploited by everyone. The question is do you setup your own fund or do you allow others to control it. The tax rate for superannuation is 15% while in accumulation mode and then 0% when in pension mode.
Every Australian can have their own self-managed fund and many do. There are in excess of 450,000 SMSF’s and this figure is rising by over 2000 per month. The question will be ‘is it right for you and your particular circumstances?’ In many cases it is, but to be sure, you should seek the help of a professional advisor. Choose someone that doesn’t receive commissions on the advice they give you, but charges you an hourly fee.
The government provided these incentives on purpose to encourage people to look after their own future. It is one of the best tax planning tools available and often to salary and wage earners the only tax planning tool available to them. So don’t be afraid to use it.
