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5 questions to ask before setting up self-managed super

Self-managed super funds (SMSF) continue to attract retirees looking for greater control over their finances, but is managing your own super for everyone? Here’s five questions to ask yourself before setting one up. Retirees continue to establish self-managed super funds, with SMSFs the fastest growing area within the superannuation industry. For many Australians, the advantage of managing your own super means greater flexibility in choosing where to invest the money, lower fees and better performance on average compared with industry and retail funds, and ultimately, more control of the future of your retirement income. Are you looking to manage your own SMSF? Before you do and to get a better understanding of what can be involved, wealth management firm BT Financial Group recommends asking yourself these five questions to see if setting up a SMSF is right for you. 1. Why are you looking to establish a SMSF? Historically, many prospective SMSF members have used the terms “control” and “choice” as reasons to establish a SMSF. But, this is not necessarily a feature confined to SMSFs. The ability to choose underlying investments (often thought of as also giving control by some) is a feature that is today available in a number of other types of superannuation funds. In general, the only asset classes that SMSF trustees will potentially look to invest in that can’t be achieved through a retail fund are direct property investments and investments in collectibles. 2. How many money do you have to start your SMSF? You can start your SMSF with less, but the industry recommended investment is around $200,000. This makes the cost of running the fund more competitive with other funds with a similar amount of money invested. There are incidental costs to running your SMSF which should be taken into account when deciding whether it’s a cost effective option with the balance you have. There are also costs in moving money from one fund to another, such as realising capital gains tax on the sale of existing investments, and time out of the market until investments are re-purchased. Any potential loss of insurance coverage (and the loss of possible benefits around group insurance arrangements) also needs to be considered. 3. What trustee structure will you utilise? As a trustee you have two choices here – individual or corporate. Most SMSFs have been established with an individual trustee structure, on the basis that it’s initially cheaper and easier. However, the benefits of a corporate structure should not be ignored. It has future benefits for the efficient running of the fund. For example, any direct shareholdings of an SMSF need to be registered in the name of the trustees. With individual trustees, when new members are added or removed, changes are required to the share register. If held via a corporate trustee, however, any changes in membership of the fund doesn’t require share registry changes, as it’s only the directors of the corporate trustee that change – not the trustee itself. 4. Have you thought about the fund’s investment strategy? One big requirement in managing a SMSF is to have a sound investment strategy, which complies with the sole purpose test requirements and assists in managing and growing super savings. You should consider diversification, risk and return. Given the recent amendments to super law, trustees should be aware that they’re also required to review their investment strategy regularly (a good idea would be annually) and to consider the insurance needs of the fund. This doesn’t mean that insurance needs to be taken out if members are adequately covered through other means, but the considerations should be documented for future reference. 5. Do you understand your obligations and responsibilities as a SMSF trustee? One of the most common comments from new trustees is that it takes more time than they anticipated in running their own fund. All new SMSF trustees are required to sign a standard trustee declaration issued by the Australian Taxation Office. While this document does a great job of summarising many of the requirements of being a trustee and the responsibilities associated with running a SMSF, the question still remains whether trustees truly understand this or are just signing it as a matter of course for establishing the fund. In the event that something goes wrong, ignorance won’t be an excuse for trustees who have signed the form. Did you know? Not to equate a SMSF with a do-it-yourself fund. If you decide to start your own fund, you should choose experienced service providers to assist with the efficient and compliant running of your fund. This includes administrators or accountants to ensure the accounts are maintained, a lawyer for the appropriate drafting of the terms of the SMSF’s deed, a tax agent for completion of annual tax returns, and a financial planner to assist with strategy and investment decisions. Image credits: Getty Images

Retirement Income

The biggest rip offs in retirement and how to avoid them

Despite millions of Australians having super in their savings, it also means that there are scammers eager to take your fortune away. Superannuation has revolutionised the way people retire. Many ordinary, working Australians are finding themselves entering retirement with more than a million dollars in retirement savings. While this should set them up for a long and happy life, living with financial security, sadly it means many will become the victims of various rip-off schemes. Rip off schemes that can be easily avoided with a little bit of knowledge. Online Scams The most obvious are on-line scams. ASIC estimates Australians lose some $30 million to online scams every year and sadly, once your money is lost, there is very little that can be done to get it back. Online scams come in many forms, from bogus emails just appearing on your computer requesting you to send money to clear a tax debt or outstanding judgement, to the infamous on-line love affair scams. The best advice is just don’t. Don’t send money to an online bank account and never give your bank account details or identification documents like your driver’s license to anyone online without knowing exactly who you are dealing with. Simplistic Investments The next biggest scam to avoid is investments that are simply too good to be true. The most common, are companies promoting investments they describe as being like term deposits or secured against property, but which offer a much higher return. Typically, if you dive into these investments you will learn your funds are being used to provide ‘mezzanine’ finance to property developers and instead of being secure, usually, they are totally at risk should the development not prove profitable. Watch out for family Unfortunately, another keyway retirees end up losing money is at the hands of their family or loved ones. Too often on entering retirement, people will discuss with their loved ones just how much money they have in superannuation. In doing so, it is easy for family members to think you can or should spare just a little of it and give it to them. This can be as simple as making you feel guilty if you don’t, through to actually breaking the law to get their hands on your precious savings. The best way to avoid all of this is to never discuss your finances in detail with family members or loved ones. Unless you are very confident about your financial situation, you should keep every cent of retirement savings to provide for you in retirement. While many will argue this is not strictly a rip-off, I believe maintaining a self-managed super fund, or do-it-yourself super fund, in retirement is. Self-managed super Self-managed super funds can be a great vehicle for creating wealth but typically, they lose their reason for being in retirement and just become a time consuming and costly way of keeping your superannuation savings. They require your accountant to lodge reports and tax returns for the fund, which in turn means accounting and compliance bills of several thousand dollars each year. This money can be saved by simply closing the SMSF and moving your savings into a quality retail fund. Typically, you will have the same level of control over your savings as you do with an SMSF but at a fraction of the cost. Be wary of retirement homes Finally, many people choose to move into retirement homes for the easier lifestyle they offer and for the support and comfort of having a strong community around them. However, this can often end in tears. Make sure you find a good solicitor to review any paperwork and ensure your financial rights and obligations are fully explained to you before you sign on the dotted line so you know exactly what you can expect in the future. Patricia Howard, author of The No-Regrets Guide to Retirement: how to live well, invest wisely and make your money last (Wiley), is a licenced Australian financial adviser. She has a Commerce Degree from the University of Melbourne, holds her own Australian Financial Services Licence and recently passed the FASEA Financial Adviser exam. Find out more at <a href="http://www.patriciahoward.com.au">www.patriciahoward.com.au</a> Note this is general advice only and you should seek advice specific to your circumstances. Written by Patricia Howard Image: Reader’s Digest This article originally appeared on <a href="mailto:https://www.readersdigest.com.au/food-home-garden/money/the-biggest-rip-offs-in-retirement-and-how-to-avoid-them">Reader’s Digest.</a>

Retirement Income

How life events can affect your SMSF

A recent study of self-managed super funds (SMSFs) has found that life-changing events such as a divorce can have significant implications for trustees. Women and SMSFs: A study of Self-Managed Super Funds, from the Commonwealth Bank and the SMSF Association found 42 per cent of SMSF trustees had experienced a life event since establishing their SMSF that could seriously impact their retirement savings. Divorce, in particular, was found to be a tricky point for trustees. The report found that only 49 per cent of SMSF trustees believed they would have enough knowledge to take over sole responsibility for managing their SMSFs in the event of a divorce or separation. The report also suggests that following a separation, divorce or death of a co-trustee, women were found to be more likely to change their strategies and align with their own investment goals, while men were more likely to maintain the strategies already in place. Marcus Evans, Head of SMSF Customers, Commonwealth Bank, said the report was a clear indicator to the fact that the SMSF market is comprised of a diverse variety of investors, each with their own unique set of needs and financial expertise. “Given that women account for nearly half of all SMSF members, more must be done to better support and empower female trustees,” Mr Evans told the Commonwealth Bank Money Management Blog. “This is also true when it comes to funds with joint-trustees, with major life events such as a divorce leaving many female trustees without the confidence to manage what is many individuals biggest investment.” To figure out whether a <a href="/finance/retirement-income/2014/06/is-a-self-managed-super-fund-right-for-you" target="_blank">self-managed super fund is right for you click here</a>. We’ve also published articles detailing the<a href="/finance/retirement-income/2014/10/the-pros-and-cons-of-smsfs/" target="_blank"> pros and cons of self-managed super funds</a> and the <a href="/finance/money-banking/2014/06/5-questions-to-ask-before-setting-up-self-managed-super/" target="_blank">common questions everyone must ask themselves</a> before setting a self-managed super fund up. You can also access the Commonwealth Bank’s <a href="https://www.commbank.com.au/content/dam/commbank/personal/superannuation/smsf/commbank-smsf-association-women-in-smsf-research-report-edition-1.pdf" target="_blank">Women and SMSFs report here</a>. Related links: <a href="/finance/retirement-income/2016/03/hidden-costs-to-retirement-village-contracts/">Hidden costs to retirement village contracts</a> <a href="/finance/retirement-income/2016/03/wealthiest-people-in-australia/">10 wealthiest people in Australia</a> <a href="/finance/retirement-income/2016/03/cost-of-residential-aged-care/">The costs involved with residential aged care</a>

Retirement Income

The pros and cons of SMSFs

Australia’s self-managed superannuation sector is unique. No other country allows hundreds of thousands of small, private pension funds to be run by members who also act as trustees, and SMSFs continue to increase in popularity.However there are pros and cons which need to be carefully considered before you make a decision on what do in planning for your retirement nest egg.ProsCost savings - If a fund is well set up and costs are managed carefully, an SMSF can represent a significant cost saving compared to the fee structure of commercially available superannuation funds.Ways to invest differently - SMSFs enable members to invest in a way that is generally not available in most large super funds. For instance, SMSFs can hold direct property, unlisted shares, artwork and other not-so-common investments.Choice, control and flexibility - The trustees have a great deal of leeway to make independent, quicker decisions on the types of investments made. This allows them the flexibility to respond to changing market conditions and to design customised retirement income streams.Business premisesinvestment - Many SME owners hold their business premises in their SMSFs for tax-effectiveness, asset-protection, succession planning (for family enterprises) and security of tenancy.ConsCosts - Cost savings can be one of the greatest benefits of an SMSF. However, the opposite can also be the case. Investors with insufficient funds to invest, and those who are not careful to control costs may find managing an SMSF prohibitively expensive.Increased time commitment - The very nature of an SMSF requires trustees to take an active interest in the management of the fund and will require a certain time commitment from trustees regardless of professional adviser involvement.Need for investment knowledge - Ideally, SMSF members should have a much more thorough understanding of at least the basics of sound investment practices than members of big funds.Risk of non-compliance - The ATO takes compliance issues surrounding SMSFs seriously and the penalties for non-compliance are severe (up to 45% – the entire fund balance as a tax penalty and the risk of prosecutions). Trustees must therefore keep a very close eye on their fund as they can face civil and criminal sanctions for serious breaches.Risk of poor diversity - Some SMSFs are established specifically to buy a single valuable asset such as business real estate. This means the fate of the fund depends on the performance of that asset which may be inadequately diversified for risk and return.Investment restrictions - Although an SMSF can provide members with more investment freedom than large funds, there are stringent restrictions on their investments. For instance, super funds must be maintained for the sole purpose of providing retirement benefits – not to subsidise pre-retirement lifestyles, and funds are prohibited from providing loans to members.Losing interest or capacity - Many people set up SMSFs with great ambitions and then lose interest or capacity as they get older, which can impact on performance.

Retirement Income

The pros and cons of SMSFs

Retirement Income

How to get double digit returns in super today!

Aussies who manage their own superannuation are much more satisfied with the performance of their funds. Here's why.If you have a self-managed super fund (SMSF) it seems you're quite satisfied with the financial performance of your retirement savings. Findings by Australian research company Roy Morgan says overall satisfaction with super in the six months to May 2014 was 55.1 per cent, up 7.2 percentage points since this time last year.One of the reasons Aussies could be satisfied with their super balances could be down to the double digit returns recorded to June 30. A great result for millions of Aussies, with the median super balanced option looking set to close the 2013/14 financial year with a 12.6 per cent gain. It's the fifth year in a row that the median balanced option has delivered a positive return and comes off the back of last yearís 14.7 per cent return, according to super research company SuperRatings.Related link: <a href="/superannuation/super/2014/06/is-a-self-managed-super-fund-right-for-you.aspx" target="_blank">Is a self-managed super fund right for you?</a>Member satisfaction for SMSFs is 75.6 per cent. It's the clear leader with Industry Funds following in second with 55.8 per cent. The research comes from Roy Morgan's Superannuation Satisfaction report, which is based on over 30,000 interviews with people every year. Norman Morris, industry communications director at Roy Morgan Research, says satisfaction with financial performance is a factor fund managers should be taking more notice of, especially as SMSFs continues to grow in popularity. The Australian Taxation Office says the number of SMSF members has grown to over one million, with more people looking to take control of their own retirement savings.It appears that satisfaction with superannuation has a lot to do with the amount in super and the consequential level of engagement, he says. The ease of switching super funds and the increase in people using SMSFs mean that the retail sector will increasingly rely on their adviser network and advice to retain customers. The retail sector includes super funds provided by the major banks.Andrea Slattery, chief executive of the SMSF Professionals Association of Australia (SPAA), says SMSF members experience increased satisfaction when their funds perform well because they have been directly involved in the investments and strategies of their fund. The increased control and flexibility of SMSFs allow trustees to tailor their fundís investments and costs to suit their own circumstances, another factor we believe results in the high satisfaction levels of SMSF members with their funds, she explains.We also believe that SMSF members have higher satisfaction where they seek professional advice in meeting their obligations and forming their investment strategies, as this helps them achieve their retirement savings goals by utilising the expertise of specialised SMSF advisors, such as SPAA specialist advisors and auditors.If you're thinking about setting up a SMSF, there's a few things you need to consider first. Remember managing your own super is a big responsibility and there are strict rules that govern how you can use a SMSF. Having said that, a lot of people are choosing to go down the SMSF road because it offers greater control and flexibility over what is essentially a major part of funding your retirement.If you're unsure whether itís the best option for you, seek professional financial advice as a planner will be able to look over your situation and recommend the best course of action.

Retirement Income

5 questions to ask before setting up self-managed super

Self-managed super funds (SMSF) continue to attract retirees looking for greater control over their finances, but is managing your own super for everyone? Here’s five questions to ask yourself before setting one up.Retirees continue to establish self-managed super funds, with SMSFs the fastest growing area within the superannuation industry. For many Australians, the advantage of managing your own super means greater flexibility in choosing where to invest the money, lower fees and better performance on average compared with industry and retail funds, and ultimately, more control of the future of your retirement income.Are you looking to manage your own SMSF? Before you do and to get a better understanding of what can be involved, wealth management firm BT Financial Group recommends asking yourself these five questions to see if setting up a SMSF is right for you.1. Why are you looking to establish a SMSF?Historically, many prospective SMSF members have used the terms “control” and “choice” as reasons to establish a SMSF. But, this is not necessarily a feature confined to SMSFs. The ability to choose underlying investments (often thought of as also giving control by some) is a feature that is today available in a number of other types of superannuation funds. In general, the only asset classes that SMSF trustees will potentially look to invest in that can’t be achieved through a retail fund are direct property investments and investments in collectibles.2. How many money do you have to start your SMSF?You can start your SMSF with less, but the industry recommended investment is around $200,000. This makes the cost of running the fund more competitive with other funds with a similar amount of money invested. There are incidental costs to running your SMSF which should be taken into account when deciding whether it’s a cost effective option with the balance you have.There are also costs in moving money from one fund to another, such as realising capital gains tax on the sale of existing investments, and time out of the market until investments are re-purchased. Any potential loss of insurance coverage (and the loss of possible benefits around group insurance arrangements) also needs to be considered.3. What trustee structure will you utilise?As a trustee you have two choices here – individual or corporate. Most SMSFs have been established with an individual trustee structure, on the basis that it’s initially cheaper and easier. However, the benefits of a corporate structure should not be ignored. It has future benefits for the efficient running of the fund. For example, any direct shareholdings of an SMSF need to be registered in the name of the trustees.With individual trustees, when new members are added or removed, changes are required to the share register. If held via a corporate trustee, however, any changes in membership of the fund doesn’t require share registry changes, as it’s only the directors of the corporate trustee that change – not the trustee itself.4. Have you thought about the fund’s investment strategy?One big requirement in managing a SMSF is to have a sound investment strategy, which complies with the sole purpose test requirements and assists in managing and growing super savings. You should consider diversification, risk and return.Given the recent amendments to super law, trustees should be aware that they’re also required to review their investment strategy regularly (a good idea would be annually) and to consider the insurance needs of the fund. This doesn’t mean that insurance needs to be taken out if members are adequately covered through other means, but the considerations should be documented for future reference.5. Do you understand your obligations and responsibilities as a SMSF trustee?One of the most common comments from new trustees is that it takes more time than they anticipated in running their own fund. All new SMSF trustees are required to sign a standard trustee declaration issued by the Australian Taxation Office.While this document does a great job of summarising many of the requirements of being a trustee and the responsibilities associated with running a SMSF, the question still remains whether trustees truly understand this or are just signing it as a matter of course for establishing the fund. In the event that something goes wrong, ignorance won’t be an excuse for trustees who have signed the form.Did you know?Not to equate a SMSF with a do-it-yourself fund. If you decide to start your own fund, you should choose experienced service providers to assist with the efficient and compliant running of your fund. This includes administrators or accountants to ensure the accounts are maintained, a lawyer for the appropriate drafting of the terms of the SMSF’s deed, a tax agent for completion of annual tax returns, and a financial planner to assist with strategy and investment decisions.

Money & Banking

One million Aussies choose self-managed super

More Australians are taking retirement into their own hands, with the popularity in self-managed superannuation funds reaching one million members. Here’s why more Aussies are choosing to self-manage their super.Managing your own superannuation fund may be a big responsibility, but more people are choosing to take the reins on their retirement by setting up a self-managed super fund (SMSF).This was backed by the Australian Taxation Office’s (ATO) March 2014 SMSF statistical report which reported the number of SMSF members have now topped one million or 1,006,975 to be precise. That’s a jump of 11,384 members compared with the December 31 figure of 995,591.The appeal of SMSFs Setting up and managing a SMSF is no easy task but the attraction of choice when it comes to how your funds are invested and when you can access it has meant the continued appeal of SMSFs.Andrea Slattery, chief executive of industry body SMSF Professionals’ Association of Australia (SPAA), says the number of trustees and members exceeding one million is an important milestone for the SMSF industry, demonstrating the growing number of people wanting to take direct responsibility for their retirement savings.“It now compels everyone involved in the industry to ensure that these trustees and members have access to the best professional advice, and certainly SPAA is committed to this outcome,” she explains.Despite the figures showing the continued growth of SMSF establishments, the pace has softened.“SPAA is encouraged by this trend. It suggests that people are only opting for a SMSF after doing their due diligence and deciding whether a SMSF is the appropriate retirement savings vehicle for them,” she reveals.Things to consider Want to be one of the growing number of Australians taking control of their super savings? Before you go ahead and establish a SMSF, there’s a few things to consider.It’s a big responsibility. There are strict rules set out by the ATO which you need to follow when managing your own super fund. While many people who set up their own SMSF have experience in financial or legal affairs, this isn’t a requirement. If you’re not confident you have the necessary knowledge and investment skills, speak with a SMSF specialist adviser first to discuss your options.You’ll also need to ensure you have enough assets, super savings and time to invest in a SMSF. It can be time consuming and costly, especially when you add up the fees for the professionals and advisers you may need to consult.This will include seeing a SMSF auditor, since one of the rules of managing your own super is to have the accounts, statements and compliance audited each year. There’s also the risk involved in making financial decisions, and you will be held legally responsible for your SMSF.The great thing about the popularity of SMSFs is that a growing number of people are looking to take control of their financial future. However, before you jump into anything, weigh up all of your options and seek professional financial advice if you’re unsure about what is best for you.Related link: <a href="/superannuation/super/2014/06/is-a-self-managed-super-fund-right-for-you.aspx" target="_blank">Is a self-managed super fund right for you?</a>

Retirement Income

Is a self-managed super fund right for you?

For those looking for greater control over their finances, self-managed super funds (SMSF) could be a great way to go. But, are they right for everyone?Greater control, flexibility and potentially lower costs are just some of the reasons why many Australians have decided to go down the SMSF path. But, what some people don’t realise is that managing your own super fund can be time consuming and stressful, particularly for those who don’t have experience in financial or legal work. However, if you’re willing to give it a go, then this is what you need to know.The ins and outs of a SMSF The major difference between SMSFs and other super funds is the level of control people have, which includes the added responsibility and workload associated with managing your own fund. You are also personally liable for all the decisions made by the fund, even if you ask a professional for help.It can also be costly. You want to make sure you have enough in your super fund to come out ahead of set up costs and ongoing expenses, including professional accounting, tax, and legal and financial advice.David Calvert, managing director of superannuation at financial services firm Dixon Advisory, says SMSFs tend to be more cost-effective for people, or couples, with a reasonable balance, usually above $300,000 if they’re still earning and contributing to super or about $500,000 if retired.In terms of cost, he said this can vary depending on your provider, so you need to be clear on the level of support you require and what you get for the fee your provider charges.“For example, at one end of the spectrum you can get a no frills offer which has minimal cost but you receive no support and have to do the heavy lifting yourself or you must pay for everything you request help on. At the top end, a SMSF partner will organise all the paperwork, filing etc and even contact and follow up existing providers for you.”He suggests that if you’re looking for support, be focused on value. Look at the capability of the provider and what you get in return for the money you pay. Being able to choose where to invest your retirement savings, including in direct property, and the potential for better performance compared with retail or industry funds has increased the popularity of SMSFs.“If you value benefits such as control, in our case having capped fees versus other types of fund where you pay a percentage of your balance, expertise of investment committee making investment recommendations, full accounting and admin support, and all these things working together for you, then setting up a supported model SMSF is a good choice,” Mr Calvert explains.So how do SMSFs work? To set up your own super fund and manage it you’ll need to adhere to strict rules set out by the Australian Taxation Office (ATO). A SMSF can have between one to four members, who are each called trustees and are responsible for all legal duties.The money must only be used to provide for retirement benefits and follow an investment strategy that ensures the fund will likely meet your retirement needs. Comprehensive records need to be kept and an audit by an approved SMSF auditor must be undertaken annually.  For help with either the administration or investment elements of the fund, an adviser can be paid to undertake these duties for you but you’ll not be able to pass on the responsibility of being a trustee or director.Is it right for you? Setting up a SMSF is not something to be done lightly, so understand your own appetite for the ongoing maintenance required for your fund.Embarking on your SMSF journey can be intimidating but there are a variety of resources available to help. The Association of Superannuation Funds of Australia’s online resource, Super Guru, is a good point of reference that spells everything out clearly and plainly while the ATO and the Australian Securities and Investments Commission have developed a comprehensive guide for those interested in going down this path.At the end of the day, remember to research, research, research and then, research some more, before jumping into a SMSF. Super is one of the most important investments you’ll ever make so take your time in finding what’s right for you.Related link: <a href="/superannuation/super/2014/06/one-million-aussies-choose-self-managed-super.aspx" target="_blank">One million Aussies choose self-managed super</a>

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5 questions to ask before setting up self-managed super

The biggest rip offs in retirement and how to avoid them

How life events can affect your SMSF

The pros and cons of SMSFs

The pros and cons of SMSFs

How to get double digit returns in super today!

5 questions to ask before setting up self-managed super

One million Aussies choose self-managed super

Is a self-managed super fund right for you?

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