SMSFs – Are they the right retirement planning vehicle for you?

With close to 600,000 self-managed superannuation funds (SMSFs) registered in Australia holding $733 billion in total assets (as at 30 June 2020), it’s highly likely you’ve heard a little bit about them. You may even be curious about why so many people choose to manage their super this way.

SMSFs can be an effective way of growing your wealth for retirement, but only if they are the right type of investment vehicle for you. Otherwise, they can prove to be costly and provide no financial benefit.

So, how do you choose the right super vehicle to enhance your retirement lifestyle? This is where partnering with a superannuation specialist is ideal. Their focus should be on:

  • assessing your whole financial situation and whether an SMSF is the best solution,
  • creating a recommendation that assesses trustee capability and protections are put in place, and
  • providing ongoing trustee support to ensure obligations and compliance are met.

The first step is understanding what value an SMSF can bring to your retirement strategy, as they can do so much more than just hold your retirement funds.

Take control over retirement investments

Having your retirement investments in an SMSF may give you greater control over growing your investments to support your retirement lifestyle. They also can offer more flexible estate planning options.

Although many super vehicles are now offering a wider range of investment choices than they have historically, SMSFs enable a significant amount of investment flexibility, both in terms of investments and how they are funded.

Borrowing within your SMSF

As with any investing, a way to potentially accelerate the investment performance in a rising market is to borrow money to add to your own money in order to purchase assets of greater value to grow and earn income over time. Your SMSF, unlike other forms of superannuation, has the ability to utilise borrowing/gearing to provide an immediate injection of financial assets to grow up to when you are ready to retire.

However, in a declining market, assets purchased with borrowed money may experience accelerated losses. There are strict guidelines imposed on borrowing within SMSFs, however, it is fairly straightforward if your SMSF can meet the required criteria.

A limited recourse borrowing arrangement allows a fund to buy shares, managed funds, or residential or commercial property (for example) when it doesn’t hold enough money to be able to make the purchase outright or funds are tied up in other investment options. However, the fund will need to hold sufficient monies to meet the obligations of the investment and associated lending. There are risks associated with gearing and it’s important these are considered if this is part of your fund’s investment strategy.

Protect your assets in super

When considering SMSFs, people mainly think of the flexibility and control this investment vehicle offers. Your self-managed superannuation fund can also be an appropriate strategy for asset protection. In most instances, assets held within an SMSF are protected from creditors. There are some exceptions to this rule but, for the most part, your assets will be protected if you are sued or become bankrupt. It is vital that accurate records are kept about assets in the fund to establish ownership. One example of this is a business acquiring commercial property to operate out of.

Estate planning your way

SMSFs can be helpful in the control of assets as well as meeting the wishes of a member in the event of their death. It is often overlooked that superannuation fund benefits or assets are usually excluded from an estate when a person dies, and distribution lies with the fund. The trust deed of the SMSF will always take precedence over a will.

Fund members can nominate what happens to the assets held in their SMSF by completing a binding death benefit nomination. It’s important to complete this in the format specified by the SMSF trust deed for it to be valid. This gives you greater control over what is likely to be one of your larger assets and allows you to make a considered choice and maintain control in how it’s distributed.

SMSFs can be a tax-effective investment choice

A financial planner will consider a number of key criteria to develop and plan an effective investment and retirement planning strategy for you. One of these is taxation. Many of the same taxation rules apply to SMSFs as they do to traditional super funds. Using an SMSF and the concessional tax benefits as part of an overall strategy may be beneficial for you and growing your wealth.

Do your research and get expert advice

We believe that considering your entire financial and lifestyle goals is the key to developing an appropriate investment strategy. Choosing an investment vehicle purely for one or more of its benefits is counterproductive if it isn’t aligned with your goals.

Now that you’ve read about the ways you can benefit from SMSFs, let us see whether it will work for you.

BG Private Clients will work with you to understand your goals, capabilities, desire for investment flexibility, asset protection and selection before even considering the recommendation of an SMSF. We’ve designed a rigorous process whereby our advisers connect deeply with clients to truly understand if an SMSF is right for them.

Please do not hesitate to get in touch with us via your BG Private Clients representative, (03) 9810 0700 or if you would like to see whether an SMSF is a right option for your retirement investment strategy.

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This article is intended for general discussion and is not intended to represent specific advice. BG Private Clients shall not be responsible for any entity that acts on any of the comments in this article without first obtaining specific advice from BG Private Clients. For further information, please click here.

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