For most Australians, retirement is the goal, but without a regular income, you will not be able to live comfortably. There have been a number of initiatives from the Australian Government to encourage people to prepare for their eventual retirement; the most notable of which was the introduction of compulsory contributions to retirement savings into Superannuation over the course of an individual's working life in a low tax environment.
People often save for retirement through the Self Managed super fund (SMSF) which allows them to invest their savings directly. Nevertheless, SMSFs are subject to a considerable number of rules and regulations, which place a burden on their operators, without which SMSFs are not suitable for everybody.
Here are some reasons why running an SMSF may be advantageous and why it may not be.
Table of Contents
Advantages
Among the benefits of a SMSF are:
Investment Choice
In comparison to other superannuation funds, SMFs offer a greater selection of investment options. SMSFs may invest in almost anything, provided it meets the sole purpose test and adheres to the law. Direct investment is included in this.
As many banks have removed their SMSF lending products from the market, it has become increasingly difficult for SMSFs to borrow to purchase assets.
Flexibility & Control
A SMSF member can also be a trustee, allowing them to customize the rules to fit their needs and circumstances. Unlike other superannuation funds, this is not offered.
You can easily make quick portfolio alterations following market changes or take advantage of sudden investment opportunities by managing your own super investments directly.
Effective Tax Management
With SMSFs, you can more easily put in place tax strategies that will best benefit you and your circumstances.
Accounting
You will have a better grasp of the performance of the investments because you are both trustee and member. Unlike Industry or Retail Super Funds, whose performance is aggregated and released many months later due to their size.
Using SMSF administration software will enable you to stay up-to-date on the value of your funds at all times so that you can keep track of the impact of your decisions and streamline the management of your fund.
Pooling Your Retirement Funds
Up to three other people can contribute to your superannuation by joining a SMSF. Investing in things like direct property that one could never do on their own opens up the possibility of investing in things one has never considered.
Protection from Creditors
Superannuation cannot be accessed by creditors in general. If someone deliberately transferred assets to a SMSF to avoid paying their creditors, clawback laws apply.
Disadvantages
However, SMSFs may not be suitable for everyone, despite their many advantages. SMSFs have a number of disadvantages, including:
Trustee Duties & Responsibilities
In contrast to outsourcing investment decisions to an investment manager within an Industry or Retail Super Fund, when you choose to 'self-manage' your retirement savings, you are personally responsible for all investment decisions. As a trustee, you must understand investment options and markets because poor investment decisions can negatively affect both your fund's assets and other members' retirement funds. This knowledge is simply not available to all people.
Living Overseas
A SMSFs majority of members must be permanently resident in Australia. During the course of living overseas or making contributions to your fund, your fund may cease to be compliant with the law.
