Do it yourself super
Some people want the control that comes with managing their own super, but taking control means being responsible for managing your retirement funds which will involve significant time and effort.
SMSFs can be suitable for people with a lot of super and skilled in financial and legal matters. You need to understand your legal responsibilities and the investments you make because, at the end of the day you are the one responsible.
How Self-Managed Super Funds work
SMSFs are a legal tax structure with the sole purpose of providing for your retirement.
An SMSF can have one to four members. Each member is a trustee (or director if there is a corporate trustee).
When you run your own SMSF you must:
- Carry out the role of trustee or director, which imposes important legal duties on you
- Set and follow an investment strategy.
- Keep comprehensive records and arrange an annual audit by an approved SMSF auditor.
- If you’re running an SMSF you will typically need:
- A larger amount of money in the fund to make set up viable
- Allow for ongoing expenses such as professional accounting, tax, audit, legal and financial advice
- Enough time to research investments and manage the fund
- The financial experience and skills to make sound investment decisions
- To organise life insurance, including income protection and total and permanent disability cover.
Before setting up an SMSF, ask yourself these questions:
- Have you considered other super options?
Many professionally managed super funds have DIY investment options which let you choose which assets you’d like your super invested in such as shares, exchange traded funds and term deposits. This gives you some control over your specific investments without the legal and administrative requirements of running an SMSF.
- Will your self-managed fund outperform your current fund?
Super funds use highly skilled professional managers to invest your super money. Can you do better than the professionals? Consider whether the investments you choose will perform as well as your professionally managed super fund. Are you confident you can accurately measure returns?
- Have you considered the costs?
Like all super funds, your SMSF will have costs associated with running the fund. These include the cost of investing, accounting and auditing for your SMSF, which may be much higher than what you are currently paying. These costs cut into your retirement savings.
- Will you lose valued benefits?
Super funds usually offer discounted life and disability insurance. If you set up an SMSF you will have to purchase your insurance separately. Make sure you look into your insurance options before closing your current super account as age and health issues can limit your ability to buy a new policy and increase your premiums.
- Do you know enough?
Are you aware of all your legal responsibilities? Do you understand the different investment markets? Can you construct and manage a diversified portfolio of investments? Do you know the tax implications?
- What if your relationship with others in the fund changes?
If there is more than one member in your SMSF, have you written a plan outlining what will happen in the event of ill health, death, relationship breakdown, or waning interest?
In addition to the usual investments such as shares, term deposits and managed funds, SMSF’s can facilitate invest in direct property. You can also hold alternative assets such as antiques and artwork in an SMSF. Many SMSF’s hold collectibles such as artwork, jewellery, antiques, coins, stamps, vintage cars and wine. There are very strict rules on holding these assets in your SMSF such as that artwork cannot be displayed in your home or business, drive a vintage car, wear jewellery or drink the wine.