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When is the right time to set up an SMSF?

Self-Managed Super funds (SMSFs) can be a cost-effective solution for your retirement nest egg and give you more control of your investments. But when is the right time to set one up?

Self-Managed Super funds (SMSFs) can be a cost-effective solution for your retirement nest egg and give you more control of your investments.  However an SMSF it’s not always the best option for everyone. For low super balances, a retail or industry fund may be the cheapest option.  In this article we explore when the right time is to set up an SMSF to help you make the decision that’s best for you.

When you should switch to an SMSF

An SMSF could be a good option for you if you have a significant super balance, if you would like to buy an investment property through your super, or if you would simply like more control and flexibility of your investments.

If you have a decent super balance

The amount of super you need to make an SMSF worthwhile is a contentious issue. It’s a common view that around $500,000 is a point where an SMSF’s become a cost-effective option. Keep in mind that this is for all members of a SMSF, as you can combine the balances of up to six people to reach this mark. There are certain circumstances which may justify starting an SMSF with a lower balance than this. However, you want to run the numbers to see what percentage of your portfolio you are paying for costs, and whether costs are worth the benefit.

If you want to invest in direct property

If you want to buy an investment property through your super, you will need to set up an SMSF. Standard retail and industry funds will not allow you to invest directly into property.

If you want more flexibility with your investments

If you would like to do things like purchase your business premises, or invest in more obscure assets that you can’t access with a standard public offer fund, then you might want to switch to an SMSF. Keep in mind that there are super wrap platforms that also give you more flexibility without the administration of an SMSF.

When you shouldn’t use a SMSF

If you’re not interested in managing your super

If managing your super does not interest you, you should probably consider remaining with a retail or industry fund. You won’t have the knowledge or enthusiasm to craft an appropriate portfolio to maximise your retirement savings. Setting up, managing, and maintaining an SMSF can also be a serious burden if you’re not ready for the responsibility.  From administration to tax management and implementing your strategy, it’s not a simple process.

If you have a low super balance

If you have a low super balance an SMSF will not be a cost-effective option. The costs of running an SMSF is proportionally higher for accounts with smaller balances. This is due to the ongoing annual fees required to maintain and audit the SMSF, which can be a few thousand dollars a year. For example, if your super balance is only $10,000 and you are paying $3,000 to maintain a SMSF, then your costs are a whopping 30%!

Is it the right time to set up an SMSF for me?

It may be the right time to consider setting up an SMSF if you have accumulated a decent super balance and have interest in crafting and managing your own portfolio. But if you’re still not sure if it’s the right time to set up an SMSF for your individual circumstances, a financial advisor will be able to help you determine the right scenario for you.

Managing an SMSF alone isn’t advised unless you really know what you’re doing. We recommend engaging a financial advisor with specialist knowledge in this field. They can help you maximise your retirement savings as well as ensure you stay on top of all the rules, regulations and changes you must remain compliant with.

At Financial Spectrum we have a team of financial advisors and accountants who are SMSF specialists.  We can help you save time and money in the long run, while potentially helping you grow your super in ways you might not have thought of before.

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