With all the new tax changes, is it time to start an SMSF?
Following the budget changes, it seems pretty clear to me that super is where I need to focus my attention in terms of being financially secure. I’m a bit of a control freak, so SMSF appeals to me. But I am afraid of the cost and perhaps the work involved. What will I do if I go down this path?
Super still has protection rules that mean you can’t access it until you’re at least 60 (apart from the First Home Super Saver scheme), so it’s not the right solution in every case. But you are right to note that pension tax generosity has really come to the fore following CGT, negative guidance and family trust changes.
The cost of setting up an SMSF is usually around $4,000. An annual tax return and audit is then required, which will set you back a similar amount each year. From there, it depends not on what you do, but on what you assign others to do.
Most people with an SMSF have a financial planning relationship and this will likely cost between $7,000 and $10,000 a year assuming a $1 million balance; This is the point at which most people will start to look seriously at SMSF. The total cost here would be pretty similar to if you had a regular industrial/retail fund plus a financial advisor relationship.
It will be cheaper if you go completely DIY, but that can take a lot of work and you have the problem of not knowing what you don’t know. You should also consider how you might cope with things later in life, when the synapses start to slow down a bit.
If DIY is your inclination, beware of SMSF becoming your new hobby. The best investment results often come from being patient and leaving investments alone for long periods of time. Checking your SMSF every day will not ensure that your SMSF increases and in fact will likely lead to sub-par results.
Take a look at wrap solutions too, as these provide a high level of investment flexibility without the need to take on the responsibility of being a super fund trustee or handling the administration. In terms of cost, packaging solutions can be cheaper than SMSF due to economies of scale.
My husband and I are both 54 years old and living paycheck to paycheck while caring for our disabled son full time. My husband earns $65,000 a year and has a pension of $120,000, while I don’t work and receive Centrelink carer payments and have a pension of $64,000. We still owe $280,000, our house needs repairs, our cars are over 25 years old, and we haven’t taken a vacation in years.
We will inherit $10,000 and we cannot agree on how best to use it; Should we put it into a retirement fund, pay off the mortgage, put it aside for emergencies, or spend some of it to improve our quality of life? What do you recommend?
I recommend you take this windfall into your mortgage, knowing that you can access it through refinancing in an emergency. I’d love to tell you to take a well-deserved holiday, but it’s important to have some money on hand for emergencies.
Without it, you’ll be safe from a broken hot water unit or falling into a credit card debt spiral that’s nearly impossible to get out of the car. I hope things get a little easier for you in the future.
Paul Benson is a Certified Financial Planner. Guidance Financial Services. He is hosting Financial Autonomy podcast. Questions: paul@financialautonomy.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paul Benson is a Certified Financial Planner and host of the Financial Autonomy podcast.
