SMSF – what you need to consider

Self-managed super funds (SMSFs) are a popular choice for Australians in their retirement planning.

Australian SMSFs held a total of $876 billion in assets as at 30 June 2023 making total assets held in SMSFs larger than those in either industry or retail funds.

Despite their popularity (there are over 600,000 already setup in Australia), self-managing your retirement savings will not be the right choice for everyone’s retirement planning.

It is important for you to carefully consider which is the most appropriate strategy for your individual circumstances.

A report by ASIC into SMSFs found that many people set-up an SMSF without fully understanding the time & cost involved and the restrictions imposed by it.

The report identifies 7 ‘red flags’ which you are encouraged to reflect on when deciding if a SMSF is right for you.

1. The person has a low superannuation balance, and would have a limited ability to make future contributions

2. The person wants a simple superannuation solution

3. The person wants to delegate all of the running of the SMSF to a paid advice-provider

4. The person wants to delegate all of the investment decision making to someone else

5. The person does not have a lot of time to devote to managing their financial affairs

6. The person has little experience making investment decisions

7. The person has a low level of financial literacy.

Ultimately the question may come down to, do you have enough super to reasonably justify the setup cost and ongoing management costs of an SMSF. While there is no minimum balance required by law, it’s important to note that those fixed costs (administration and audit fees), as a percentage of the balance, will decrease as the balance increases.

The Rice Warner report[1], ‘Costs of Operating SMSFs ASIC’ states a balance of less than $100,000 is unlikely to be competitive in cost comparison against industry and retail funds. Over $100,000 may be competitive, but only if administrative and investment costs are minimised. Over $500,000 is generally the ideal territory to be in for management of an SMSF. As a useful rule of thumb, if your expected annual costs are less than 2% of your super balance then that is when a SMSF may be worthwhile.

There is a lot to think about when considering an SMSF option for your retirement planning. Before moving forward too quickly, it’s important to note each of these flags and considerations in relation to your personal circumstances to make sure you choose the best option for yourself and your family.