Is an SMSF right for you?

A self-managed super fund (SMSF) is a powerful way to save for your retirement in Australia. Once you have a fair amount of knowledge and time, you’ll be able to manage the fund super easily. The best part regarding SMSF is, the members of SMSFs are typically the trustees as well, which denotes you can run it for your benefit. Furthermore, you’re held accountable for complying with the super and tax laws.

Prior to deciding on setting up an SMSF, ponder whether it fits your budget, purposes and needs. Following are the things that can help you decide whether or not it’s right for you.

What is a self-managed super fund?

Before jumping into the deciding factors on whether or not a self-managed super fund is right for you, get the basic knowledge about it.

A self-managed super fund, also known as SMSF, is a super fund taken care of by you. Unlike other retirement funds, you are completely in charge of this reserve. An SMSF provides you with the right to choose your investments and also offers a wealth of options for investments, which other funds don’t.

SMSF can include four members whom you know, like your friends and family. All will be known as trustees and, as a consequence, would be decision-makers too. That means all would be liable to have enough financial knowledge so that the fund complies with tax and super laws.

Questions to ask for deciding whether or not SMSF is right for you

1. What are your investment goals?

The very first thing to contemplate is your investment goals. It’s because an investment strategy without a defined investment goal doesn’t have any point. Additionally, the goals set must be achievable. Many would be delighted to aim for an amount of $1 billion in retirement funds; however, this goal might be unrealistic for many, unlike a few lucky people.

Therefore, consider the following factors to formulate your investment strategy:

• Age of trustees and years left for retirement: Long horizons investment usually lead to higher returns.
• Levels of risk that you can accept: You must think through the risk factor you’re willing to take.
• Contributions: You must decide on the budget you’re ready to invest now to meet your retirement goals
• Reliability: Your level of reliability on the SMSF fund will have a direct impact on the investment perils you may be inclined to bear.
2. Do you have sufficient super?

As such, there’s no minimum amount you require to begin in SMSF, but a lower balance tends to be less cost-effective than the higher ones. Generally, middle-class trustees commence on SMSF with at least $3,00,000, expecting it to grow. In addition to this, there are some administrative costs that you need to incur.

Plus, you're obligated to spend on some ongoing costs associated with SMSF, including annual tax returns, investment fees and ATO fees. Additionally, if you need support managing your funds, you can pay for professional SMSF support services. Considering all these costs, you should decide whether or not you have enough super.

3. Are you willing to take on the responsibilities?

The law of superannuation demands honesty, extensive care and actions based on mutual agreements from the trustee. Additionally, as trustees, you’ll be loaded with a bounty of responsibilities for running SMSF. Some of them include:

• Managing the SMSF records, like bookkeeping in accountancy
• Creating, implementing and regularly evaluating SMSF investment strategies
• Filing tax and regulatory returns
• Make sure you work in compliance with superannuation law

So, if you’re up for taking all these responsibilities, then you’re closer to its DIY approach.

4. Are you confident in your knowledge of finance?
   
   
As mentioned earlier, as a trustee or even when running an SMSF, you require enough financial knowledge, along with time to undertake SMSF responsibilities. Although you can hire an accountant or financial advisor, you can also opt for a DIY approach. All you need to do is learn about the guidelines of your fund. After all, knowledge will furnish you with confidence while making an appropriate investment decision.
5. Are you willing to invest time to manage your SMSF?
   
   
SMSF is a time-consuming process. Further, it majorly depends upon two things. One, the person with whom you associate and two, the complexity of investments. Of course, by taking SMSF support services, you’d be able to handle time and your funds in a compliant manner.


However, if you simply want to manage yourself, then time is key. But, if you aren’t ready to spend an abundance of time in research and management, then outsource a professional.

Although SMSF sounds super easy, the reality is the opposite. Typically, it’s like an elite sports player of superannuation funds. And not every Australian will have the skills and knowledge required for it though it’s fine if you don't have. That’s why for such people, other types of funds exist.

Hopefully, the above information may have helped you decide whether or not SMSF is right for you. However, if you’re still not confident, then we would recommend consulting an independent financial advisor.