Are SMSFs 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. And maybe you’ve been curious about why so many opt to manage their super this way.

SMSFs can be an effective way of growing your wealth for retirement. But they can be a costly exercise and provide no financial benefit if it’s not the right type of investment vehicle for you. A super specialist is the ideal partner when choosing the right super vehicle to enhance your retirement lifestyle. 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 that 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. They can do so much more than just hold your retirement funds.

Take Control over Retirement Investments

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

Although many superannuation vehicles are offering a wider range of investment choice than they have historically, an SMSF enables a significant amount of investment flexibility, both in terms of investments and how they are funded.

Borrowing Within your SMSF

Like with any investing, a way to potentially accelerate the investment performance in a rising marketing is to borrow money to add to your own money, to purchase greater value assets 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 an SMSF, 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 a 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. The fund will need to hold sufficient monies to meet the obligations of the investment and associated lending though. There are risks associated with gearing and these should be considered if this is part of your fund’s investment strategy.

Protect Your Assets In Super

When considering a SMSF, people think mainly of the flexibility and control of this investment vehicle. Your self-managed super fund can also be an appropriate strategy for asset protection. In most instances, assets held within a 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. A business acquiring commercial property to operate out of is one example of this.

Estate Planning Your Way

A SMSF can be helpful in 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.

SMSF can be a Tax Effective Investment Choice

A financial planner will take into account 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 SMSF as they do to traditional super funds. Using a 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 for you. 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 a SMSF, let us see whether it will work for you.

We’ll 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 Planners connect deeply with clients to truly understand if an SMSF is the ideal recommendation.

Speak to us today to see whether a SMSF is the right option for your retirement investment strategy.

IMPORTANT INFORMATION: This blog has been prepared by Modoras Wealth Management (VIC) Pty Ltd is a Corporate Authorised Representative (No. 383940) of Modoras Pty Ltd ABN 86 068 034 908 an Australian Financial Services and Credit Licences (Number 233209). The information and opinions contained in this presentation is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. Any individual making any investment or borrowing decisions should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to borrow funds or purchase, sell or hold any particular investment. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of, credit contract entered into or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog may change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.