SMSF's Explained

Understanding Self Managed Super Funds (SMSF)

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What is an SMSF?

Self Managed Super Funds (SMSF) are a type of superannuation fund that you manage yourself, rather than having it overseen by an industry superannuation fund. SMSFs are a popular choice for those who want more control over their retirement investments, including the choice of investment options and direct management of the fund.

Planning for Retirement

Did you know that a comfortable retirement, according to the Association of Superannuation Funds of Australia (ASFA), suggests that a couple needs about $72,000 per year to fund a comfortable lifestyle, assuming they own their home outright? According to the Australian Bureau of Statistics, in FY21, the government pension remained the main source of income for most retirees. The aged pension for a couple is less than $40,000 per year, and less than $25,000 per year for a single person.

Super tends to be one of our largest assets, yet many people don’t know the current balance of their superfund, which company manages their fund, or the individual who manages their fund.

How Much Income Will You Need in Retirement?

The average super balance for men between the retirement age of 60-64 is around $370,000, and for women, the average balance is around $290,000. To fund a comfortable lifestyle, according to recent reports, a couple needs around $72,000 annually. How does that compare to your current income? Many of our clients indicate they would like to have an income of around $100,000 per year in retirement. Downsizing the family home is not always the only solution.

If we work backwards and assume you have assets generating around a 5% return or yield, you would need around $1,440,000 of net assets in addition to having your own home paid off to generate $72,000 per year of income in retirement. To generate $100,000 per year, you would need assets of $2,000,000.

The Importance of Early Planning

As mentioned, the average super balance for men between the retirement age of 60-64 is around $370,000, and for women, the average balance is around $290,000, so many people fall quite short! Planning for retirement early is crucial, as we see too many clients leave planning to a couple of years prior to retirement, meaning they end up with debt in retirement – something you want to avoid.

Pros and Cons of SMSFs

Pros

  • Control Over Investments: You have more control over one of your biggest assets, including the ability to invest in shares, property, and fixed income products.
  • Tax Benefits: Income earned from the SMSF is taxed significantly lower than personal income tax rates for most individuals. Additionally, when you retire, the income you receive from the SMSF may be tax-free.
  • Capital Gains: If you sell a property when you retire, the sale proceeds are generally tax-free, meaning no capital gains tax is payable. If you decide to keep a property in retirement, all the rent you earn may be tax-free.

Cons

  • Cost: SMSFs can be costly to establish and run, as you need the assistance of a financial advisor and accountant. It’s typically most cost-effective if the fund has a substantial amount of money to manage, generally suggested to be at least $200,000.
  • Regulation: SMSFs are heavily regulated by the ATO and ASIC, requiring strict adherence to rules. Professional assistance is necessary to ensure compliance.
  • Access to Funds: You generally cannot access assets of the SMSF until you retire.

Is an SMSF Right for You?

SMSFs generally offer benefits like being able to invest in assets or use certain strategies that may not be available to you in other types of super funds. However, this doesn’t mean setting up an SMSF is the right move for everyone. Here are a few issues to consider:

  • Regulation: SMSFs are heavily regulated, requiring significant effort to ensure compliance.
  • Time and Management: You are in charge of the SMSF, meaning you must be willing to spend the time needed to manage your investments effectively.

We can introduce you to specialist SMSF advisors who can help you understand what’s involved and whether an SMSF is right for you.

Conclusion

Remember, planning for retirement early is crucial. Start making the time today to plan for your retirement. Make your retirement years as rewarding and secure as they should be.

If you have any questions or need further advice, please feel free to reach out to us. We can introduce you to specialist SMSF advisors who can help you understand what’s involved and whether an SMSF is right for you.

FAQ

What is an SMSF?

Self Managed Super Funds (SMSF) are a type of superannuation fund that you manage yourself, rather than having it overseen by an industry superannuation fund. SMSFs are a popular choice for those who want more control over their retirement investments, including the choice of investment options and direct management of the fund.