When you’re ready to start thinking about retirement, you’ll likely hear the term superannuation fund mentioned by your accountant or financial advisor and maybe even be offered to join one of these funds at work. But what exactly are superannuation funds? Is there a difference between self-managed superannuation funds and regular superannuation funds? And which one should you join?
1) An SMSF is a vehicle for tax planning
In addition to being a retirement savings vehicle, an SMSF can be used as a way to reduce your tax bill and better control how much you contribute. While it may seem daunting at first, self-managed super funds have become increasingly popular in recent years. Plus, there are some significant tax benefits to taking charge of your super yourself and avoiding investment fees – so make sure you’re familiar with what they are before deciding whether or not an SMSF is right for you.
2) SMSFs offer more control over your investments
While managed funds often offer pre-determined asset allocations, you can switch your investments whenever you want. If you don’t like how your fund is performing, selling an investment in an SMSF involves only two steps: informing your financial planner (or yourself) of your intention to sell, and making sure they know when it’s been done. What if there’s one particular investment that isn’t doing well?
3) Diversification options are more plentiful
In Australia, your SMSF has more diversification options than a regular super fund. This is because an SMSF can invest in any of six different classes of assets (shares, real estate, fixed interest and cash). However, don’t forget to get advice on your asset allocation before making any investments.
4) There are tax benefits outside super
However, it is important to remember that there are significant tax disadvantages outside super in comparison to within super. For example, contributions made by your employer are taxed at a concessional rate (currently 15%), whereas if they were contributed outside of super they would be taxed at up to 46.5%.
5) Retirement plans can be tailored to suit your specific needs
A self-managed super fund (SMSF) is a pension plan that gives you greater control over your retirement savings. With an SMSF, you can choose from a wider range of investment options than those typically offered by industry funds and you have more flexibility in setting up your retirement plan.
In addition, contributions to SMSFs are not subject to age restrictions. If you have retirement goals that an industry super fund does not cater to, an SMSF may be suitable for you.
6) If you are good with numbers there may be lower costs involved
Having your own self-managed super fund gives you control over how your money is invested. Because you will be paying income tax at your personal marginal rate, it is worth reviewing whether an SMSF could be more cost-effective. It’s worthwhile considering getting help from a professional accountant to do so, rather than trying to do it yourself.
7) You control how the fund is managed
Many people are concerned that their financial affairs are not in their control, but that is not always so. When it comes to self-managed super funds you’re in charge. Unlike some of your other investments where you may have no say in what happens and how it will be done, for your self-managed super fund you get to decide where and how your money is invested.
8) You can gain an understanding of how different investment types fit together in a portfolio
One of the key things to remember about investments is that, no matter how good investment looks on its own, you won’t know how well it fits into your overall portfolio until after you’ve implemented it. Finding out exactly what works for you will take some time and resources—and may even mean making some mistakes along the way. However, as each year passes by, your knowledge will increase and your ability to assess investments should improve.
9) SMSFs allow you to lock in retirement strategies
Have you ever considered your retirement strategies? If not, now is as good of a time as any. One such strategy is self-managed super funds (SMSFs). Read more to find out why having one can make all of your financial decisions easier.
10) Controlling costs is easier
A self-managed super fund gives you complete control over how your retirement savings are invested. As an employer, if you choose to make regular contributions to your SMSF it’s likely you will be able to claim these expenses as tax deductions. This means that even if you use outside investment advisors for your super, you can still keep total control of costs by choosing how much you invest in each of your chosen funds and sectors.