Self-managed super funds were once the domain of retirees seeking more control over and better tax breaks for retirement savings. However, the investor profile has been changing, perhaps due to growing financial literacy among Australia’s mid-career professionals and their growing interest in investing.
“It’s not surprising that the vast proportion of our new SMSF clients are people in their 40s and 50s,” says Perks Director of SMSF Kerry Bosnich.
“The earlier you can start planning for your retirement, the better the position you will be in when the time arrives.”
Bosnich says that around 70% of the firm’s new SMSF clients in the last few years are still decades away from retirement age. It is a trend that she expects to continue.
“Superannuation is one of the key financial considerations you make during your lifetime, as it sets you up for your retirement years,” says Bosnich.
“An SMSF provides you with greater control of your retirement savings and can enhance your ability to generate wealth.”
That said, Bosnich emphasises that the growing pool of fund-owners are not the super-wealthy; “For many, it’s just good money management, as over a certain threshold it can be as expensive, if not more so, to remain in an APRA regulated fund, commonly called an “industry or retail super fund.”
The widely used rule of thumb is that a balance of $500,000 in super is needed to warrant an SMSF. But Bosnich points to a comprehensive research report released by the University of Adelaide’s International Centre for Financial Services.
The report found there were no material differences between the performance of SMSFs with balances of over $200,000 compared with those of over $500,000. Additionally, it found that once a fund balance reaches $200,000 it can achieve comparable investment returns and the cost effectiveness of an APRA-regulated fund.
“The cost effectiveness of an SMSF generally scales as the fund’s size grows, due to the fees associated with establishing and maintaining it,” explains Bosnich.
This is where it can be beneficial to seek out a SMSF specialist, so that you have all the information you need to weigh up the cost versus benefit before jumping in headfirst.
“Ensuring that you have a sufficient starting balance is the first fundamental consideration in moving forward with the decision of setting up an SMSF,” explains Bosnich.
Another myth often clouding SMSFs is that they are set up on an individual basis. The fact is, up to six family members including spouses and children can pool their funds.
“Often couples set up a meeting with us to discuss the feasibility of setting up an SMSF together.”
“It starts by having a simple conversation about their plans for retirement and their thoughts on investing independently. If both are on the same page with their financial goals, then an SMSF can be a good fit.”
As a final commonly held SMSF myth, many believe that to have one, you need to be a stock market savant or property mogul.
“However, you should be experienced in making investment decisions and have good financial literacy,” Bosnich says.
“Investing in property can be a great opportunity to diversify your portfolio. But it can also become quite complex to structure, particularly when gearing is involved.”
Seeking specialised advice in initial investments via a SMSF specialist will ensure you’re fully aware of the relevant legislation and help you to develop a portfolio structure that’s beneficial for your retirement objectives.