Following the budget changes, it seems clear to me that super is where I need to focus my attention on achieving financial security. I’m not a control freak, so SMSF appeals to me. But I fear the cost, and perhaps the work involved. What path will I enter if I go through this path?
Super still has savings rules which mean you can’t get it until at least 60 (apart from the First Home Super Saver scheme), so it’s not the right solution in all cases. But you are right to point out that the tax relief offered at the highest level emerges following CGT, negative gearing and family trust changes.
The cost of setting up an SMSF is typically around $4,000. Then you need an annual tax return and audit done, which will give you the same amount back every year. From there, it comes down to what you do yourself, versus what you hire others to do.
Most people with an SMSF would have a financial planning relationship, and that could come with a cost of $7,000 to $10,000 a year assuming a balance of $1 million, which is the point at which many would start looking seriously at an SMSF. The total cost here will be the same as if you had a standard sector / retail fund with a financial advisor relationship.
It will be cheaper if you go full DIY, but that can be a lot of work, and there is the problem of not knowing what you don’t know. You also have to consider how you might handle things later in life, when the synapses start to wear down a bit.
If DIY is what you’re after, watch out for SMSF becoming your new hobby. The best investment results usually come from being patient and leaving the investment alone for the long term. Checking your SMSF every day will not make it better, and is likely to lead to inconsistent results.
Look at lock-in solutions as well, as these offer a high level of investment flexibility, without the need to take on the responsibility of being the fund’s main guarantor, or doing the management. In terms of cost, a closed solution can be cheaper than an SMSF due to economies of scale.
My husband and I are both 54 years old and live paycheck to paycheck while caring for our disabled son full time. My husband earns $65,000 a year and has $120,000 in super, while I don’t work and receive Centrelink carer payments, and $64,000 in super. We still owe $280,000 on our mortgage, our house needs repairs, our cars are over 25 years old, and we haven’t had a vacation in years.
We’re due to inherit $10,000 and can’t agree on the best use – should we put it to higher use, pay off the mortgage, put it aside for emergencies, or use some of it to improve our lives? What would you recommend?
I recommend that you put this discount on your mortgage, with the understanding that you can get it through a redraw in an emergency. I would love to tell you to take a well-deserved vacation, but having money for emergencies is very important.
Without it, you are one of the failed hot water unit or car failure to fall into a cycle of credit card debt that is almost impossible to climb out of. I hope things get easier for you in the future.
Paul Benson is a Certified Financial Planner at Financial Services Guide. He is the host of Financial freedom podcast. Questions for: paul@financialautonomy.com.au
- The advice given in this article is general and is not intended to influence readers’ decisions about investments or financial products. They should seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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Paul Benson is a Certified Financial Planner, and host of the Financial Freedom podcast.
