Should you manage your own superannuation?

Most of us can use an SMSF. But should we?

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Almost all of us would have a superannuation fund. After all, it's a lawful requirement that any Australian citizen or permanent resident who is employed must be paid superannuation. This super in turn must be paid into a specific super fund for our retirements.

Most Australians utilise the services of an external super fund provider for this purpose. There are hundreds of superannuation funds that manage Australians' money on their behalf. But some of the most popular include AustralianSuper, Australian Retirement Trust, Aware Super and REST.

However, some Australians prefer to manage their own superannuation through a self-managed super fund (SMSF). Those who choose to use an SMSF have to front up all of the (not insignificant) costs of managing their own superannuation. But in return, they get complete control over what assets their retirement savings are invested in.

According to Australian Taxation Office (ATO) data released earlier this year, SMSFs made up 25% of all superannuation assets in Australia as of 30 June 2023. There were 610,000 SMSFs operating in Australia as of that date.

Many ASX investors might like the sound of running their own super funds. At the end of the day, super is still our money. So today, let's discuss who should manage their own superannuation.

Who should manage their own superannuation with an SMSF?

The idea of taking direct control of one's super retirement fund might sound empowering. However, there are some important considerations to keep in mind.

First, running your own SMSF is expensive. A super fund has to be structured as a trust, and trusts have to periodically pay expensive licensing and regulatory fees.

It will only be cheaper to manage your own super if you're assets are above a certain threshold. Here at the Fool, we've discussed how having at least $200,000 in super assets before starting an SMSF is essential. Having less than that can end up costing you more in fees compared with leaving your money in an external super fund. What's more, you might need even more than that if you wish to match the long-term returns of your average external super fund.

Further, since you will be responsible for your own super, you will lose important protections that other Australians enjoy, like theft or fraud protection. No one is going to bail you out if you make a poor investment decision and lose money in your super fund. Running an SMSF might also mean that your insurance regarding premature death or disability might be affected or voided.

Finally, running your own super requires a huge amount of time. The government estimates that SMSF trustees spend more than eight hours a month (or over 100 hours a year) managing their SMSFs. That's probably 100 times more than your average Australian.

Foolish takeaway

Running your own super fund with an SMSF might sound empowering or glamorous. But it requires a lot of time, money and discipline. There are also significant downsides that you should be aware of.

So, it's probably a good idea to seek professional financial and taxation advice before establishing your own super fund.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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