by Olivia Long

Deciding to set up an SMSF is one of the most important financial decisions you will ever make – possibly the most important.

When you consider younger people now planning their retirement can expect to live, on average, between 20 and 30 years after they stop work, then it become self evident why the decisions you make now about superannuation are so important.

If you opt for the SMSF route to fund your retirement, then those decisions become even more important – because you are making them.

So it’s critical before setting up an SMSF to make sure it’s the right option for you.

Here are some questions you should ask yourself before doing so:

1. Do I have the time to run a fund? Although you can engage experts to help run your fund – and many people rightly do so – it is still time consuming. If you are time poor, then don’t set up an SMSF.

2. Do you have knowledge of, and perhaps more importantly, interest in, the investment markets? By this I don’t mean you have to be Australia’s answer to Warren Buffett, but you do need to have an understanding of the markets. Your advisors will make recommendations about certain investment strategies – but you will have to sign off on those decisions. And that, at the very least, requires understanding what your advisor is saying.

3. Does the thought of managing a SMSF interest you? Or would you rather be on the golf course? To give you a few examples you will have to:

  • Be responsible for ensuring the fund’s assets are valued at market value
  • Appoint an approved SMSF auditor to audit your fund
  • Prepare and lodge your SMSF annual return
  • Keep comprehensive records

This list is far from exhaustive – and that becomes another “do”. Go to the Australian Taxation Office website, which oversees the SMSF sector, to see where it details all your responsibilities as an SMSF trustee.

4. Some industry observers say a low superannuation balance – typically less than $200,000 – makes an SMSF simply too expensive. A definite don’t. I disagree there is a minimum. Rather, I argue that if people want to get actively involved in their superannuation from a young age and understand the costs involved, they should be encouraged to do so. That said there is no point in setting up an SMSF and not engaging in the running of it. An APRA-regulated  fund is a better option for you.

5. Flexible tax management is another “do” when it comes to setting up a SMSF.  It means you can take tax into account when you are considering setting up a fund. An obvious example is buying shares that pay fully franked dividends.

6. Do remember to set up your SMSF for the right reason – to fund your retirement. Just because it’s your money don’t think the superannuation rules are different for you. For example, it doesn’t mean you can access your superannuation early, and there are – rightly – heavy penalties for doing so.

7. Another don’t is listening to the siren call of the investment spruikers. At the moment there is no shortage of these so-called experts urging people to set up an SMSF to invest in residential property – and using debt to do so. As part of an overall investment strategy, investing in residential property can be the right decision. But only after making a considered decision and getting licensed.

8. Which brings me to my last “do”. Setting up an SMSF is a critical decision – as I said earlier, perhaps the most critical decision about your financial security you will make. So get specialist advice. You don’t have an operation without seeing a medical specialist. It’s the same with an SMSF – get specialist advice. One could save your life. The other could make your life worth living.