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As increasing numbers of Australians look for ways to boost their retirement savings, self-managed super funds (SMSFs) are gaining popularity. So much so, in fact, that the number of SMSF’s grew by 5% in 2022 alone.

However, with the rules and regulations that govern SMSFs, they may not be suitable for everyone – so weighing up the advantages and disadvantages of SMSFs before opening one is crucial.

Let’s explore the most significant benefits of SMSFs, as well as the potential disadvantages of SMSFs.

Advantages of SMSFs (The Benefits of SMSFs)

Investment Control and Flexibility

One of the major benefits of SMSFs is that, as a trustee, you retain control over it. You get to choose who can join the fund, which investments to make, which professionals to hire to manage its assets, and every other key decision related to your retirement planning.

More Investments Available

Subsequent to controlling your SMSF, selecting your own investment strategies is a considerable benefit of self-managed super funds. Additionally, you can invest in various asset classes, some of which may not be available in other super funds. These include:

  • Real estate: including commercial properties
  • Direct Equities: i.e., shares and other securities
  • Precious metals, like gold
  • Collectables, e.g., artwork, coins, stamps

SMSFs allow up to 6 members to pool their retirement savings, giving you more capital and opening up more investment opportunities. Similarly, another benefit of SMSFs is being able to access borrowing for particular assets – further increasing the range of investments available to you.

Increased Transparency

As a trustee, you’ll remain aware of how the money in your SMSF is invested and about the performance of your investment strategies. In contrast to conventional funds, where it generally takes months to discover the status of your super, a considerable benefit of an SMSF is the real-time insights they provide into the performance of your investments. If your SMSF is underperforming, you can make the appropriate course corrections quickly and optimise your wealth creation.

Cost Efficiency

Generally, the cost of running a super fund is a percentage of your balance, so your fees increase as the value of your retirement assets grows, so do your fees. Conversely, the costs of running an SMSF, even when with administrative and management fees, are typically fixed, regardless of the asset value of held assets. Subsequently, a benefit of SMSFs is that as their value increases, your costs, in proportion to your balance, decrease.

Additionally, if your fund has multiple members, another benefit of SMSFs is that you can divide ongoing costs, like financial advisory fees, between you, for extra cost efficiencies.

Potential Tax Benefits

An understated benefit of SMSFs is the ability to have control over the taxation of your benefits. In particular you will have the ability to choose the timing of disposing of investments and therefore have control of the amount of capital gains tax incurred.

benefits off SMSFs 2

Disadvantages of SMSFs: The Drawbacks of SMSFs

Required Time and Commitment

As a trustee of your SMSF, you’re, at least partly, responsible for its operation and, ultimately, its performance – which requires time and effort. This includes:

  • Management and administration
  • Investment decisions
  • Compliance with tax legislation (i.e., paying on time) and other financial regulations

Cost Inefficiencies

To reap the cost benefits of SMSFs, you need assets of sufficient value, or its running expenses can make it an inefficient option. Similarly, if your chosen investment strategies are unsuccessful and your balance doesn’t grow quickly, your fixed costs won’t decrease proportionally.

Unable to Access Certain Investment Options

Because of the large sums of money under management, bigger funds can access investments unavailable to SMSFs. Alternatively, they could use their economies of scale to lower costs – increasing the ROI for their members.

Is an SMSF worth it?

As detailed, despite the many benefits of SMSFs, they’re not a suitable financial strategy for everyone. Here are a few things to consider when deciding if an SMSF is worth it for you.

Do you want to take control over your retirement savings?

Is it important to you to know how your savings are invested? Do you want to have a say in what you are specifically invested in? If so you may want to explore learning more about how an SMSF may work for you

Are you hesitant to make contributions to your existing super fund due to lack of transparency?

If you have a lack of conviction about the investments within your existing fund or are uncertain about making investments in the share market and would like to invest in residential or commercial property using super, you may want to explore learning more about how an SMSF may work for you

Do you have sufficient superannuation balance to start an SMSF?

While there is no prescribed minimum amount required to establish an SMSF it usually becomes cost effective once you have a balance of $250,000 or more

KPartners – Melbourne’s Premier SMSF Specialists

K Partners‘s experienced team of experts are well-versed in the benefits of SMSFs and can advise you if an SMSF is a viable wealth creation strategy, in light of your needs and circumstances.

For more information on the benefits of SMSFs, or advice on any other aspect of financial and retirement planning, contact us to schedule your free, no-hassle consultation.

Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circumstances or goals into consideration.

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