Is Setting Up a Self-Managed Super Fund (SMSF) Easy?

Managing retirement savings is a critical aspect of financial planning, and many Australians rely on superannuation funds to secure their retirement. However, there is an alternative approach known as a Self-Managed Super Fund (SMSF). In this article, we will explore the ease and relevance of setting up an SMSF in today’s financial landscape.

Understanding SMSFs

The name itself, Self-Managed Super Fund, suggests its primary feature – self-management. Unlike traditional superannuation funds managed by professionals, SMSFs empower individuals to make investment decisions and take responsibility for compliance with legislative requirements.

The Evolution of SMSFs

In the past, SMSFs were a popular choice for those seeking more control over their retirement investments. A decade ago, there was a significant demand for SMSF services, with many individuals and professionals actively involved in managing these funds. Some even authored books on the subject, highlighting the enthusiasm for SMSFs.

Changing Landscape

However, the financial landscape has evolved considerably since then. The emergence of Wrap platforms with advanced functionality, reduced costs, and improvements in industry funds have diminished the need for SMSFs. These developments have made it easier for individuals to access diversified investment options and professional management at a lower cost.

When Does an SMSF Make Sense?

While SMSFs may no longer be the go-to choice for most investors, they still have their place, primarily for those interested in investing in property using their superannuation savings. It’s essential to recognize that most individuals are often better off pursuing property investments outside of superannuation. This approach offers advantages like lower financing costs, reduced establishment expenses, greater flexibility in renovations, and better utilization of negative gearing opportunities.

Nevertheless, there are individuals whose investment philosophy revolves around property, and for them, an SMSF can be a way to satisfy this preference. There are specific provisions that allow SMSFs to acquire property for members to operate a business, making it a viable option for some.

Considerations for SMSFs

It’s crucial to be aware of the concentration risk associated with SMSFs that invest heavily in a single property. Not only does this mean a significant portion, if not all, of your retirement savings, are tied up in one asset, but it also links your livelihood to the success of the business operating within that property.

For those with substantial superannuation balances, SMSFs can offer cost savings, especially if they handle most of the work themselves. However, if you outsource both investment and administration tasks, alternative structures may be more cost-effective and less burdensome.

In most cases, individuals who already have SMSFs should consider retaining them, at least until they enter the pension phase. However, the case for establishing new SMSFs today is rather limited, given the array of investment options and cost-effective alternatives available in the current financial market. While SMSFs offer autonomy and control, they also demand a significant level of responsibility and may not be the easiest or most suitable choice for everyone.

For personalized guidance and advice on managing your retirement savings, contact us today at 1300 952 286 to discuss your financial goals and determine the most appropriate strategy for your unique circumstances.

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