When you think about retirement, do you dream of long holidays, lazy days by the pool and spending lots of quality time with your family and friends? Many people think of retirement as a time to do all the things they didn’t have time for when they were working.
The problem is, a good retirement lifestyle requires a decent retirement income, something that a government pension won’t provide you with. That’s exactly why a lot of people, young and older, are now setting up their own self managed super fund because it allows them to take full control of their superannuation investments.
What Are The Major Benefits Of An SMSF?
Apart from having total control over your own super, an SMSF has many additional benefits. Some of these include:
- If you’re a couple, you can set up a self managed super fund with both of you as trustees and roll your individual industry super into the one fund. This will give you both more money to invest, meaning your SMSF can grow much faster. In fact, an SMSF can legally have up to 4 trustees.
- You get to choose where you want to invest your money and can diversify your investments as much as you want. You can do this on your own or with the help of a financial advisor.
- An SMSF is fairly easy to set up with the help of your financial advisor and your accountant. Once the fund is set up, it will require a bank account in the fund’s name where all your roll-over and future contributions will be deposited.
What Type Of Investments Can You Make With Your SMSF?
Because you have total control of your super investments, there are numerous things that you can invest in with your fund. These include:
- Managed funds
- Fixed interest securities
- Listed and unlisted property trusts
- Investment properties
- Government or corporate bonds
- Precious metals like gold and silver
- Most artwork and collectables
- Geared unit trusts
- Commodity trades
With so many options, you can diversify your super funds to gain the most return on your investments. You must remember however, that self managed super funds are regulated by the Australian Taxation office and there are certain guidelines which must be adhered to when making any type of investments with your fund.
Any investments that you make with your SMSF must be for the sole purpose of increasing the retirement benefits within the fund which will ultimately be dispersed to the trustees when they reach retirement age.
While you’re still working, you cannot use any of the investments for your own private enjoyment or even let any relatives, friends or associates use any of the investments. Therefore you can’t rent your investment property to any member of your family or hang any investment artwork on the walls in your home.
What Can’t You Do With Your SMSF?
There are certain limitations set down by the ATO for things that you can’t do with your SMSF. These include:
- Your fund cannot lend money to its trustees, any family member of its trustees or any associates of its trustees.
- Your fund can only borrow money under certain circumstances such as with a limited recourse loan to purchase an investment property.
- Your fund can also not buy assets from a trustee, a family member or an associate of a trustee except in the case of business property. If you or another trustee of the fund runs a business, the fund can purchase a commercial property which the business can rent as long as it is at market value. This certainly has some tax benefits for the business owner and also the advantage of the rent being paid for the property increasing the value of the super fund.
What Are The Legal Requirements Of Running Your Own SMSF?
As trustee of your own self managed super fund, you have certain administrative duties that you need to comply with to satisfy the ATO requirements. These include:
- An independent annual audit which will determine the fund’s compliance with the required regulations. It also includes a financial audit of the fund.
- You must also understand the various rules and regulations regarding the fund’s operations and must have an investment plan in place which includes the type of investments that the fund is permitted to commit to.
- To make it easier on you, you can employ a fund manager or team to help you meet all the legal obligations of your SMSF.
So How Can An SMSF Contribute To A Better Retirement Lifestyle?
Firstly, because you decide what to invest in, you have the ability to grow your fund much faster than you possibly could with an industry fund. If you are knowledgeable in share trading, for example, you’ll have the advantage of knowing just what to invest in to get the best returns.
Your fund can also purchase an investment property in an area that you would like to eventually retire to and once you reach retirement age and start receiving benefits from the fund, you are then able to move into the property as your retirement home.
And if you’ve invested in items such as fine artwork, once you retire, you can hang these pieces in your home so that you can enjoy them in your retirement years.
As you can see, having your own SMSF has many advantages over just relying on an industry super fund to take care of your retirement funding. Before you decide to open up your own SMSF however, be sure to speak to your financial advisor or accountant to ensure that this type of retirement investment is right for your personal situation.
Once your SMSF is set up, ensure that you comply with all the legal requirements and enlist the help of your financial advisor to ensure that your fund is always fully compliant. Then you can sit back and enjoy a more comfortable retirement when the time comes.