January is a time for goal setting and I’ve read that around half of all Australians will make a New Year’s resolution. Among those inclined to make a personal pledge, about one in five will aim to improve their financial position this year. If that sounds like you, I reckon it’s worth putting your super under the spotlight in 2014.
Australia currently has around $1.6 trillion dollars in super – a vast pool of wealth that will grow considerably over time. The tendency of successive governments to keep changing the rules of super can be frustrating, and it would be naïve to think that future governments won’t further tweak the system. But any changes to super will be pitched at making the system fairer to our community even if they don’t suit us personally.
While we have a tendency to focus on government-led changes to super, one of the biggest trends to have impacted the nation’s retirement savings in recent years has been the rapid growth of self-managed super funds (SMSFs), also known as do-it-yourself or DIY super.
Tax Office figures show that at the end of June 2013, there were an estimated 509,000 SMSFs – an increase of about 40,000 funds in one year alone. Chances are we’ll see similar growth in 2014.
There are compelling reasons to start your own super fund. Having direct control of your nest egg and being able to invest in the way you choose are all common reasons for considering an SMSF. I have one myself.
Be aware though, SMSFs comes with big responsibilities. Not only is the quality of your retirement at stake, there are significant legal issues to address, and good tax planning and estate planning are essential.
Sure, your accountant or financial planner can help with these matters, however, when you’re a member of an SMSF, you’re also a trustee of the fund and that means the buck stops with you when it comes to complying with superannuation regulations – and also earning a decent return.
That’s why the decision to start up an SMSF needs proper consideration. Before committing to anything, take a moment to think about you and your plans. How much money will you need in your senior years, and what is the best way for your super to help you get there? Is the best solution for you to have your super money in an industry fund, a retail fund or should you set up your own self-managed fund?
If you can sort out where you are now and what you want to achieve in the future, your decision about whether it’s best for you to establish an SMSF becomes easier. That said, make sure you also know what’s involved in managing your own super fund – from choosing the right investments to knowing about super regulations and responsibilities and keeping on the right side of them.
For more ideas on how much super you’ll need, strategies to reach your super goals, and what you need to know about setting up and managing an SMSF, take a look at my new book Control Your Own Super Fund, published by Penguin this month.