Self Managed Super
The combined effect of the aging population and the recent global financial crisis means that Australians have never had a harder time securing a comfortable retirement.
It's a common misconception; that having a super fund with low fees or the one with the best performance will be enough to secure your retirement. Many people are looking deeper and considering alternative retirement options such as owning property inside their own Self Managed Super fund.
Self Managed Superannuation is being promoted by accountants and other professionals as an alternative solution to boosting your retirement prospects. But we'd like to cut through all the hype and give you the simple facts you need to know about Self Managed Super Funds; the benefits, the drawbacks and who should have a Self Managed Super fund.
Why Self Managed Super?
Self Managed Super funds (with good financial advice) have 4 major advantages over their Retail Super Fund counterparts which can make them a preferable retirement vehicle:
- Gearing
In traditional retail and industry super funds you're expected to provide all the cash to fund your investments, which can significantly limit the growth potential of your super fund. Legislation changes have allowed Self Managed Super Funds to borrow money (gear) internally to purchase investments. Essentially, you can now grow your wealth faster by using someone else's money. This also gives you the opportunity to access to a wider range of investments (such as direct property) that may not have been previously attainable with a smaller account balance. - Investment Choice
Retail and industry super funds generally have a restricted investment choice, which varies depending on the ongoing administration cost of running the account. Retail funds set up by financial advisers often have a larger number of investment options (including managed funds and shares), whereas industry super funds tend to have more basic investment options. Both types of accounts have their market and pupose. Most people have little or no input into the establishment of their super fund and end up with a default strategy set up by someone else, whether it be their financial adviser or payroll administrator. While this may seem to work ok for the majority who do not take an interest in their super, it can have grave long-term effects. - Self Managed Super Funds (SMSFs) allow you to purchase an almost unlimited variety of investments. For example, SMSFs are an excellent way to invest in real estate especially if you are borrowing. For those in a position to do so, this is a more effective way to buy property than traditional negative gearing with greatly reduced personal risk. But the greatest benefit of SMSF's is in having the choice and making investment decisions for yourself, not somebody who doesn't know or understand you. Don't underestimate the power of choice coupled with sound advice. Remember that your super fund is likely to be your most valuable asset after your home.
- Fees
Retail and industry super Funds charge their fees based on your overall account balance, which means larger account balances attract larger fees. In most cases, Self Managed Super funds operate differently. After your initial set up costs your fees are based on what it costs to provide ongoing advice and support. So for larger account balances you could make significant fee savings by going Self Managed. - Tax Advantages
When you have your super in a retail or industry fund you have very little flexibility when it comes to tax. There are a range of tax strategies that are unique to Self Managed Super Funds, which can have a big impact on the growth of your account. - There are many other benefits that may have an even greater impact depending on your personal circumstances. Self Managed Super Funds offer much more flexibility in managing your estate plans by better matching your insurance program to your needs. And did you know that SMSF's allow up to four members, which means people can pool their funds to access even more investment opportunities which can be particularly beneficial for families.
And the mental rewards of getting involved in self managed super shouldn't be underestimated. Many Retail Fund members have little or no Involvement in deciding how their money is being invested which leads to apathy. Some Retail Super Fund members don't even know how much they have in super, so how do they know if they are on track to achieve their desired retirement income?
Taking control actually gives investors a better appreciation and interest in their savings, which often leads to better decisions and ultimately a better retirement.
Recent Legislative Changes Make it Even Easier
The Legislation regulating Self Managed Super Funds has undergone momentous changes recently, perhaps the most significant of these changes was the introduction of gearing / borrowing. Before this change, alternative investments such as residential property were not available to Self Managed Super Fund holders unless they were able to accumulate all the cash themselves.
We expect many more legislative enhancements in the coming years and you can be sure that Planning for Prosperity will be abreast of any new developments. We even run regular information sessions on how you can take advantage of improvements to SMSF’s. These sessions are run free of charge and offer lots of valuable information. If you’d like to find our next scheduled information session please click here.
Is Self Managed Superannuation right for me?
Self Managed Super Funds are really for those who want to take control of their savings and have involvement in their investment decisions. You need to be willing to be responsible for your own financial security.
There are detailed legal requirements for operating a self managed super fund that must be adhered to, so you will require good quality advice and support.
The good news is that with the right advisors, managing your SMSF shouldn’t take up too much of your time. At Planning for Prosperity we can help you set up your Self Managed Super Fund and provide strategic advice on things like investment options, retirement goals, tax management, insurance planning, if gearing is beneficial, and family estate planning. Understanding you, your personal circumstances and what you want to achieve is the foundation to a sound financial plan. Because your circumstances can change, we will meet with you regularly to make sure you're still on track and make any necessary tweaks to your plan.
While there aren’t any restrictions on minimum amount to have invested in a self managed super fund, the industry rule of thumb suggests that, based on costs, it is prudent to have around $200,000 or more. There are also certain industry groups such as farmers and small business owners who can take huge advantage from the tax benefits of SMSF’s. It can be a very cost effective way to own or buy property, pass assets and income to other generations and lower business risk.
We run regular seminars where we explore the opportunities for Superannuation strategies for Rural and Small Business, to find our next schedule event please click here.
The Legislation regulating Self Managed Super Funds has undergone momentous changes recently, perhaps the most significant of these changes was the introduction of gearing / borrowing. Before this change, alternative investments such as residential property were not available to Self Managed Super Fund holders unless they were able to accumulate all the cash themselves.
We expect many more legislative enhancements in the coming years and you can be sure that Planning for Prosperity will be abreast of any new developments. We even run regular information sessions on how you can take advantage of improvements to SMSF’s. These sessions are run free of charge and offer lots of valuable information. If you’d like to find our next scheduled information session please click here.
Is Self Managed Superannuation right for me?
Self Managed Super Funds are really for those who want to take control of their savings and have involvement in their investment decisions. You need to be willing to be responsible for your own financial security.
There are detailed legal requirements for operating a self managed super fund that must be adhered to, so you will require good quality advice and support.
The good news is that with the right advisors, managing your SMSF shouldn’t take up too much of your time. At Planning for Prosperity we can help you set up your Self Managed Super Fund and provide strategic advice on things like investment options, retirement goals, tax management, insurance planning, if gearing is beneficial, and family estate planning. Understanding you, your personal circumstances and what you want to achieve is the foundation to a sound financial plan. Because your circumstances can change, we will meet with you regularly to make sure you're still on track and make any necessary tweaks to your plan.
While there aren’t any restrictions on minimum amount to have invested in a self managed super fund, the industry rule of thumb suggests that, based on costs, it is prudent to have around $200,000 or more. There are also certain industry groups such as farmers and small business owners who can take huge advantage from the tax benefits of SMSF’s. It can be a very cost effective way to own or buy property, pass assets and income to other generations and lower business risk.
We run regular seminars where we explore the opportunities for Superannuation strategies for Rural and Small Business, to find our next schedule event please click here.
If you’d like to learn more please feel free to attend one of our free information sessions. Or if you’d prefer to chat one on one, please give us a call on 08 8333 0790 to arrange a free initial appointment.
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