It is an age-old question. Do we leave our superannuation in the hands of industry fund managers? Or do we put it into a self-managed superannuation fund and take control of it ourselves?
It isn’t an easy choice. After all, industry funds give security. You don’t have to think about it.
But the Global Financial Crisis (GFC) in 2008 awoke the sleeping giant. Many Australians who had trusted the industry fund managers suddenly woke up to find their retirement nest egg had dropped by 20%, 30%, and even more! One of my favorite clients, who had a balance of $700,000, saw it drop to less than $500,000 over 6 months. Considering he was 72 years old, one can only imagine his stress.
Not only that but in the year before, in 2007, we witnessed revolutionary changes in the superannuation industry. It was made tax-free after the age of 60, and also, the laws were relaxed to allow people to borrow in their SMSF to buy property. (Previously this was not allowed.)
So SMSFs became the new trend. Suddenly everyone was running to their accountant and financial planner wanting one. They wanted to buy property and trade shares and do it themselves rather than rely on the fund managers.
A greater surge towards financial independence had begun.
It reminded me of a book called “The Sovereign Individual” by Rees Moggs and Davidson. Here the authors predicted in the 1990s that there’d be a greater surge toward financial independence and people doing it themselves as they got fed up with government controls and restrictions.
But this was one thing where the government got it right. It encouraged people to do that, to save for their retirement, and in a tax-free environment, and also, to get educated in investing.
So when would you need an SMSF, and is it the best thing for you?
You need to get professional advice and seek a qualified financial planner. But here are a few tips to help you work out if a SMSF is best for you. Just see if you can answer “yes” to the following 5 questions:
Self-managed superannuation funds are important in that they enable an employee to add personal funds to the contributions of the employer. This can be done through a scheme known as salary sacrificing. This means that the employee is in a position to decide to take less salary and contribute the remaining amount to the funds. Since the extra amount contributed to the fund is excluded from tax, self-managed superannuation funds help the employee save on tax thus reducing financial obligations. The funds are also the best choice of investment for Australians since they make it possible for an investor to claim a tax reduction under the Superannuation Industry (Supervision) Act 1993.
Self-managed superannuation funds enable family wealth accumulation for Australians. The funds with careful and organized planning, allow multi-generations to build up savings and allow for desired incomes upon the death of its members. The funds can be organized and set up in a way that it meets the financial needs of the members. The self-managed superannuation funds have a long life making it possible for the funds to be used to provide adequate and lifelong financial benefits for different generations. The funds enable its members to cater to the needs of the family upon the death of its members.
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