The appeal of self-managed super funds (SMSFs) is they allow you to manage your own retirement nest egg, investing it exactly how you want to.
But there are a number of responsibilities involved in running your own SMSF which should not be overlooked. So, here are 3 tips you can use to work out if an SMSF is right for you.
1. Do you have sufficient funds?
You will want your SMSF to be financially viable, i.e. the costs of running it shouldn't be significantly more than the fees you would pay in a retail or industry super fund. Of course, the actual cost of running your SMSF will depend on how you run it.
Research undertaken by the Australian Securities and Investments Commission (ASIC) sheds some light on this. It indicates that the costs of running an SMSF can be competitive with industry and retail funds where the SMSF has a minimum balance of at least $200,000 and the trustees of the fund undertake some of the fund administration responsibilities themselves.
2. Are you ready for the responsibility?
When you have your own SMSF you are responsible for the investment decisions, the insurance, and the administration of the fund. You will be the trustee of the fund unless you chose to appoint a corporate trustee, but even then, you will be responsible for the fund.
This means that you are personally liable for the fund's decisions, even if you get help from professional advisers. You will still be responsible for the fund if your circumstances change, for example, if you lose your job or your relationship breaks down.
3. Do you have the time?
There is a lot of work involved in managing an SMSF, even with professional help. You will need to spend time not just setting up the fund, but tending to its ongoing management. You will need to have the time to research, set, and follow an investment strategy.
You will also need to commit to ongoing research of investment opportunities and managing the administration of the fund. Running an SMSF means taking care of the accounting, keeping records, and arranging for the fund to be audited each year by an approved auditor.
Foolish takeaway
Managing your super yourself gives you the opportunity to take control of your retirement savings and (hopefully) grow them the way you want to. But there are also risks and responsibilities involved in having an SMSF.
Fundamentally, you should only consider starting an SMSF if you're fully committed and have a good understanding of what's involved.
