There has been plenty of discussion from a range of different sources on the optimum superannuation balance to setup a Self-Managed Super Fund (SMSF) – but much of it is up for debate and most SMSF providers have their own guidance on what they feel is a correct level of funds.
Perhaps you’ve thought about using a SMSF as a vehicle to fund your retirement, but you’ve heard different arguments about the amount you require to establish one. Much of this can be put down to a combination of different advice guidelines, the Australian Securities and Investments Commission (ASIC) suggested minimum superannuation balance and the trustee’s individual circumstances. Here at Anne Street Partners, we take a view that for a SMSF to operate properly and provide adequate returns to the fund, a minimum balance of $200,000 is required.
There will be some circumstances where less than $200,000 is acceptable, and others where it won’t be enough – just like most financial circumstances, it all depends on the individual scenario. Here’s why we feel $200,000 maybe a great starting point for a SMSF:
- Greater certainty – running a SMSF can have more costs than operating an industry fund and having a minimum of $200,000 can help leverage investments and cover these costs. The costs can include:
1. Establishment costs – setting up and registering the fund
2. Administration fees – the costs of running the fund
3. Compliance fees – a yearly audit of the fund required by the ATO
4. Life Insurance costs – SMSF trustees are required to consider life insurance for the members of the fund
- Investment strategy – you’re operating an SMSF to generate a return to help you fund a comfortable retirement. Because a SMSF affords you with the flexibility to determine your own investment preferences and control, the more investment resources you have available the more ability you may have to help generate a good investment rate of return.
- Taxation – operating an SMSF can have some real tax advantages with a rate of tax of generally 15%. Maintaining a healthy balance allows you to take full advantage of these taxation benefits.
- Structure – an SMSF can operate both pension and accumulation accounts within the fund which enables you to draw from the fund and contribute to it at the same time. Many other funds require these to be separate, so operating this with $200,000 helps to ensure the fund continues to provide adequate liquidity and returns.
- The power of 4 – an SMSF has a compelling advantage with the ability to have up to four members in one SMSF. This can have additional benefits – including lowering overall operational costs by spreading these across all the members of the fund. Combining $50,000 per fund member to start an SMSF is an increasingly popular choice and one that can enable all members of the fund to benefit from a greater overall investment pool.
- Time – maintaining an SMSF will take more time than a regular fund – this goes hand-in-hand with the additional levels of control and investment flexibility. However, developing this strategy can take more time and you may need to seek advice on the right investment structure. Having a good superannuation balance enables you to leverage investments and seek additional education about an investment where you may require it.
Overall, although there isn’t a hard-and-fast rule that specifies the superannuation balance required to establish an SMSF, leveraging a healthy balance of $200,000 or more can help to deliver more benefits from the fund as it’s going to give you more to start to invest from the outset.
The additional control you have with an SMSF also will require more time and attention dedicated to the fund, than say an industry fund, so bear this in mind as its only natural that you’ll expect the fund to return more.
In most cases and with a starting balance of $200,000, an SMSF is a solid foundation that can be used to create returns that help to fund your retirement objectives and goals. They won’t suit everyone, so if you’d like to explore whether an SMSF is right for you and your circumstances, talk to your Financial Adviser. They’re here to help understand your objectives and goals and develop a retirement strategy that suits your needs.
For information on how to secure the financial future for you and your family, please talk to your financial adviser. They are here to help.
General Advice Disclaimer
The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.