When it comes to preparing for retirement, planning ahead is essential. One increasingly popular option is a self-managed super fund (SMSF). However, it might be difficult for some people to understand how it works, especially if it is their first-time hearing about it. That's why we asked Nick Zaras from Concilium Wealth Management to share his insights and experience about SMSFs. In this article, we will dive into what SMSFs are, their benefits and drawbacks, and how they work.
Nick Zaras, in the simplest terms, explains that SMSFs are super funds that allow individuals to take charge of their retirement savings and investment choices. SMSFs allow for maximum control of where and how the money is invested with many options for investment, including stocks, property, cash, overseas investments, among others. Yet, it is important to note that SMSFs come with greater responsibility, namely looking for ways to maximise returns and adhering to legal requirements.
Why choose SMSFs? Nick suggests 3 compelling reasons:
1 - Property Power: Use your SMSF funds as a deposit for a commercial or residential property investment. Enjoy the benefits of having the rent go back to your SMSF instead of a third party.
2 - Take Control: Say goodbye to relying on others for your retirement savings. With SMSFs, you have the power to create and execute specific investment strategies tailored to your needs.
3 - Flexible Freedom: Embrace the flexibility that comes with managing your investment portfolio. Tailor it according to your preferences and watch it grow.
If you are interested in setting up an SMSF, it is recommended that you have a minimum of $200,000 to invest to make it financially viable. Nick explains that this amount is because starting an SMSF incurs costs in the initial set-up, and recurring expenses for compliance, amongst other things. When considering setting up an SMSF, one ought to weigh up the costs in relation to the benefits.
So what might be a drawback?
While SMSFs allow investors to take charge of their own investments, it is not a decision that one should take lightly. SMSFs come with strict rules and regulations set by the Australian Taxation Office (ATO). For example, there are restrictions on what the money in the fund can be used for, also on who can contribute to it and when you can access the funds. Throughout this investment journey, an accountant, financial planner, or mortgage broker may offer their assistance to help you steer within the rules and regulations of the ATO. They are also important to ensure SMSF investments remain compliant and do not acquire tax penalties.
In discussing the costs inherent in SMSFs, they are not the most affordable. There are compliance fees on SMSFs that can range from $2,500 -$3,000 per annum, however additional expenses may vary depending on the complexity of an SMSF investment portfolio. It is important to do your research and understand that SMSFs require an investment of time and effort to ensure they remain compliant and profitable.
SMSFs are ideal for individuals looking to have more control over the management of their investments, particularly property investors and those with specialised investment experience. To achieve successful investment results, compliance with strict ATO guidelines and regulations must be upheld consistently. An SMSF is an investment that requires time, resources, and knowledge, hence it is important to seek advice from an SMSF team of experts to ensure that one's investments align with the ATO regulations. With these factors in mind, SMSF is a viable option for Australians who seek greater financial and investment autonomy.
For more from our discussion with Nick – head over Financial Fofu and listen to the our full Podcast episode or explore more finance topics that might interest you!