Should you manage your own superannuation?

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

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

More on Retirement

A couple sit on the deck of a yacht with a beautiful mountain and lake backdrop enjoying the fruits of their long-term ASX shares and dividend income.
Retirement

3 steps to take for a rich retirement with ASX shares

Following these steps could help you have a golden retirement.

Read more »

Woman holding $50 notes with a delighted face.
Retirement

How many Australians receive dividend income in retirement?

A new report provides insights on the most common sources of income for Australia's 4.2 million retirees.

Read more »

A middle-aged couple dance in the street to celebrate their ASX share gains
Retirement

How much money do you need to retire?

Planning for retirement? Here are key considerations and effective strategies to help you prepare.

Read more »

A elder man and woman lean over their balcony with a cuppa, indicating share rpice movement for ASX retirement shares
Retirement

2 cheap ASX property shares I'd buy in retirement

We can build good returns with these stocks, in my opinion.

Read more »

Side view of a happy senior woman smiling while drawing as a recreational activity or therapy outdoors together with the group of retired women.
Retirement

What age is too young to retire in Australia?

Even if you can retire early, should you?

Read more »

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Retirement

Top ASX shares to buy in June and hold for retirement

Looking forward to your retirement?

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Retirement

3 lower-risk ASX dividend shares for retirees

I think these stocks are contenders for resilient passive income.

Read more »

Happy couple enjoying ice cream in retirement.
Retirement

3 of the highest quality ASX shares to buy for a retirement portfolio

Analysts think these shares could be in the buy zone this month.

Read more »