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How much control do you have over your retirement planning? For more than one million Australians, the answer to this is “a lot”. That’s because they are members of self-managed super funds (SMSFs), pooling their superannuation together with others and (with the help of a financial adviser or fund manager), investing in assets of their own choosing.
SMSFs are increasingly popular, increasing in number by more than 30 per cent since 2011. But if you’re ready to take control of your super, there are some risks you need to understand.
Your personal liability
Operating an SMSF means using the help of a financial adviser, accountant or fund manager and an SMSF auditor to ensure everything is above board, correctly filed and tax-compliant. You can’t just pick up “SMSFs for Dummies” and assume you are ready to invest.
Operating an SMSF can let you relax when you retire.
However, no matter who helps manage your funds, you are personally liable for how the money is spent. If your SMSF is providing benefits to you now rather than specifically for retirement, you could be responsible for a breach of legislation. That’s why professional financial planning is a must for managing your own super.
Investment risk
Super Guide reports that in the latest data, SMSFs had average returns of 5.1 per cent while large-scale super funds recorded 5.25 per cent. This stretches back over nine years, however, and includes the global financial crisis.
Investment risk is something every SMSF trustee needs to manage.
However, these are averages – many people will find a great deal of success with their SMSF. However, selecting your own investment is inherently risky. Portfolios should be diverse, risk and return analysed, and a long-term plan should be in place. ASIC research shows that more than half of us don’t fully understand diversification, so investment risk is something every SMSF trustee needs to manage.
Tax compliance
More investment scope, unfortunately, comes with more tax to pay. You have to value your assets every year, secure actuarial certificates if you need them, file a lot of paperwork, appoint auditors, document your investment strategies and make sure income stream payments are up to date – and that’s just to start.
If your SMSF is not compliant, the ATO may make you go to education courses, or take more extreme measures like freezing your assets.
It’s a lot of information to take in, but it can all be worth it when you enjoy the benefits of an SMSF in retirement. If you want to find out more about how managing your own super can enhance your wealth, talk to the team at Invest Blue.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
Operating an SMSF can let you relax when you retire.
