So you’ve decided that self-managing your super is the right choice for you as you begin to prepare for retirement, great! But when is actually the right time to start a SMSF, and what should you know before you dive in? Let’s find out!
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What to Consider Before You Start
Before you start your self-managed superannuation fund, it’s important to be sure that an SMSF is right for you.
Managing an SMSF can reap plenty of financial rewards, but the process isn’t simple. You’ll need to ensure that you have a high level of financial literacy and are able to commit time, knowledge, and dedication towards managing your fund.
It’s also important to be aware of legal requirements your self-managed super fund will need to adhere to. Are you prepared to do what it takes to ensure that your fund complies with super regulations and Australian taxation laws? Do you have a good financial advisor and an SMSF auditor on hand to help you? Those are the questions you’d need to ask yourself before you start.
How Much Super Do You Need to Get Started?
As you prepare to launch your SMSF, an essential first step is to recognise whether or not you have enough super to make setting up a self-managed fund worthwhile.
There’s no set amount when it comes to deciding how much super is enough to get started with an SMSF, despite years of research by the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC). However, generally speaking, self-managed superannuation funds perform best when they begin at a high base level.
Some industry professionals suggest that at least $200,000 worth of super is a good starting point for a self-managed superannuation fund, while others recommend saving $500,000 or upwards of $1 million before starting your SMSF.
Ultimately, when it comes to gauging whether your super savings are ready for the leap to an SMSF, what matters most is that you understand the implications and requirements of a self-managed fund and are prepared for the ways in which your existing super amount will influence the costs associated with managing your fund.
In most cases, the higher your super assets, the lower your costs will be, and the higher returns your fund will produce. A recent research conducted by Professor Ralf Zurbruegg from University of Adelaide revealed that the SMSFs with balances of $200,000 or more are cost-effective compared with industry or retail superannuation funds.
This all comes back to fees and investments. SMSFs offer flat-fee rates that are of most benefit to funds that would lose large sums with percentage-based fees. And it goes without saying that the more investment opportunities you’re able to pursue, the more opportunities you’ll have to earn.
With an SMSF, cost structures are far from simple. Costs include:
- set-up fees
- professional accounting support
- preparation of financial statements
- investment management fees
- actuarial fees (if applicable)
- preparation and submission of an annual tax return to the ATO
- payment of an annual SMSF supervisory levy
- corporate trustee fees (if applicable)
- arrangement of independent SMSF audit by an ASIC-registered SMSF auditor.
As you make decisions about your SMSF, it’s a good idea to conduct a cost-benefit analysis to ensure that the path is financially viable for you.
If you’re confident that your super savings are enough to make a self-managed superannuation fund worth your while, it’s time to start considering the other things you’ll need.
One of the key components of managing an SMSF is expertise. SMSFs operate using complex financial and investment structures, so it’s important that you have a high level of financial literacy and can understand the ins and outs of maintaining your fund.
To make the most of an SMSF, you’ll need to create a clear investment strategy, aiming to generate significant returns that will build your wealth and provide for retirement.
It’s likely that you’ll need to rely on professional support to identify and pursue suitable investment opportunities with your SMSF, as well as to ensure that you’re meeting all legal requirements and receiving full benefits, so prepare to welcome a skilled financial advisor on board to help you.
Time is an important consideration when it comes to establishing your SMSF. Managing an SMSF effectively can be a time-consuming task, so you’ll need to ensure that you have enough time to commit to making your SMSF an effective financial venture.
Allow plenty of time to set up your fund, consult with SMSF Specialists and pursue investment opportunities. Ensure that you can commit the time needed to research investments, monitor your investment strategy, stay up to date with Superannuation laws and trustees’ responsibilities, and adhere to reporting requirements.
With all these things in place, you’re ready to start your self-managed superannuation fund(SMSF) and begin preparing for a wealthy retirement!