With all the new tax changes, is it time to start an SMSF?

Following the budget changes, it seems pretty clear to me that super is where I need to focus my attention in terms of getting financially secure. I’m a bit of a control freak, so an SMSF appeals to me. But I’m fearful of the cost, and perhaps the work involved. What am I in for if I go down this path?

Super still has the preservation rules that mean you can’t access it until at least 60 (other than the First Home Super Saver scheme), so it’s not the right solution in all circumstances. But you are right to identify that the tax generosity afforded to super really stands out following the CGT, negative gearing and family trust changes.

The cost to set up an SMSF is typically around $4,000. You then need an annual tax return and audit done, which will set you back a similar amount each year. From there, it depends on what you do yourself, versus what you employ others to do.

Most people with an SMSF would have a financial planning relationship, and that’s likely to come with a cost of $7,000 to $10,000 per year assuming a balance of $1 million, which is the point at which many would start to seriously look at an SMSF. The total cost here would be pretty similar to if you had a normal industry/retail fund plus a financial advisor relationship.

It will be cheaper if you go full DIY, but that can be a lot of work, and there’s the problem of you don’t know what you don’t know. You also have to consider how you might handle things later in life, when the synapses start to slow down a bit.

If DIY is your leaning, beware of the SMSF becoming your new hobby. The best investment results typically come from being patient and leaving investments alone for extended periods of time. Checking on your SMSF every day won’t make it go up, and is actually likely to result in sub-par outcomes.

Take a look at wrap solutions too, as these provide a high level of investment flexibility, without the need to take on the responsibility of becoming a super fund trustee, or do the administration. Cost wise, wrap solutions can be cheaper than an SMSF due to economies of scale.

My husband and I are both 54 and living pay-cheque to pay-cheque while caring full-time for our disabled son. My husband earns $65,000 a year and has $120,000 in super, while I’m not working and receive Centrelink carer payments, with $64,000 in super. We still owe $280,000 on our mortgage, our home needs repairs, our cars are over 25 years old, and we haven’t had a holiday in years.

We’re due to inherit $10,000 and can’t agree on the best use for it – should we put it into super, pay down the mortgage, keep it aside for emergencies, or spend some of it on improving our quality of life? What would you suggest?

I suggest you put this windfall onto your mortgage, with the knowledge that you could access it via redraw in an emergency. I’d love to tell you to take a well-deserved holiday, but having some money available for emergencies is just so important.

Without that, you are one failing hot water unit or car bingle away from falling into a credit card debt spiral that is near impossible to climb out of. I hope things get a bit easier for you in the future.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: paul@financialautonomy.com.au

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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