For many Australians, a superannuation account is the largest asset they may own, at least outside the family home. Super accounts are supposed to be our best shot at a comfortable retirement. And with what is now 11% of every paycheque going into super, the value of our super fund can get fairly significant after a few years in the workforce.
However, most Australians outsource the management of this significant well of wealth to an external party. This is fair enough for many of us. Running a super fund is complicated and expensive. As such, many of us are better off if a professional fund manager takes care of our retirement needs.
But other Australians might desire to have more control over their retirement and by extension, their financial destiny. Managing our own super ourselves is completely legal. All you have to do is set up a self-managed super fund (SMSF).
Now the idea of managing our own superannuation – deciding which assets and investments our retirement money is being invested in – might sound appealing to many readers today. But all Australians should know that running an SMSF is an expensive and complicated endeavour – just like running an ordinary super fund is. As such, it probably won't suit everyone.
But how much should you have in super before even considering an SMSF?
How much does it take to run a self-managed superannuation fund?
Well, as we've covered here at the Fool before, research from the Australian Securities & Investments Commission (ASIC) has suggested that an SMSF needs to have a balance of at least $200,000 in order to compete with the cost-effectiveness of a typical super fund.
What's even more pressing is that ASIC reckons an SMSF owner needs to have at least $500,000 in their SMSF before it can regularly compete with the average returns earned by regulated super funds.
At the end of the day, you will probably live to regret switching your super to an SMSF if it results in you having a less comfortable retirement.
But that's not the only consideration potential SMSF users need to consider.
There's also the time needs. ASIC has also estimated that running your own SMSF requires around 100 hours a year. If you're passionate about squeezing the best results possible out of your investments, this might sound reasonable, But if you're likely to neglect your SMSF after a year or two, every prospective SMSF owner needs to consider whether they're likely to be able to spend the necessary time running their own retirement funds.
There are other factors SMSF owners should keep in mind as well. There's investment risk of course. When you decide which assets are in your own super fund, you take on the risk that your assets generate the required returns to be able to compete with other super funds.
There are also other risks to consider. SMSFs don't typically offer the same protections against scams and other threats to your super balance as commercial super providers do, for instance.
At the end of the day, opening an SMSF is an individual choice. But all would-be SMSF investors need to remain clear-eyed about the pros and cons of managing their own retirement fund.
