How much is super required to make establishing a self-managed super fund (SMSF) worthwhile?
Many people who opt to set up an Self Manager super fund (SMSF) base their decision on the why, but it is also vital to examine the minimum feasible balance they require. For example, when I established my family SMSF, we set a minimum balance objective of $200,000.
The personal decision to establish an SMSF is frequently motivated by a desire for greater control over investment decisions or a more hands-on approach to retirement fund administration. It’s also common for a couple to pool their savings to obtain economies of or fund a home purchase in superannuation with or without borrowing.
Fees for SMSF administration and audits have decreased in the previous five years due to the availability of data feeds from bank accounts, share trading platforms, and managed funds, but some accountants still manually input data (at a higher cost).
Self-managed super fund (SMSF) charges
If you choose to handle all of your assets yourself, the following are the approximate SMSF establishment and administration charges to bear in mind at the time of writing:
SMSF startup fees are one-time only.
$185 to $600 for a trust deed
SMSF Sole Purpose Trustee: $510 to $920
SMSF annual fees
Online accounting administration and audit prices range from $775 to $1,760 (basic service with little or no tax, accounting, or structural assistance).
If you have a corporate trustee, the annual ASIC business review cost is $56.
Add five-share/ETF/hybrid trades every year at an average cost of $20 to $33.
These pricing levels are based on my experience and other sources, such as the Rice Warner study, which will cover in further detail below. Remember that the actual costs your SMSF will pay may vary based on several factors, including the sorts of assets held in it and the amount of additional manual data handling necessary.
The ATO allows you to deduct many of the costs paid by your SMSF. Bank accounts, term deposits, and initial public offering (IPO) acquisitions are normally free of charge, while fees may apply in specific situations.
Is it cost-effective to establish and manage an SMSF?
The cost-effectiveness of an SMSF is determined by its balance. In November 2020, a study paper commissioned by the SMSF Association and conducted by the actuarial company Rice Warner provided some information on whether this type of superannuation may be a cost-effective and viable retirement savings vehicle for persons considering putting one up.
According to the report, SMSFs with balances of $200,000 or more can be cost-competitive with industry and retail superannuation funds in some cases, and SMSFs with balances of $500,000 or more (aside from those that invest directly in property) is generally the cheapest alternative due to their mostly fixed fees.
Suppose you’re an SMSF trustee or member. In that case, you should regularly evaluate your fund’s costs and performance against various industrial and retail funds to determine if you’ve picked the best option for your retirement investment.
Consider if an SMSF is a good investment for you
With an SMSF, you may expect yearly tax and audit expenditures of $1,450 or more, in addition to investment fees. Based on the generally used 1% fee rule of thumb, that would imply that someone with $200,000 might manage an SMSF cost-effectively.
Remember, these are the base rates; if you add the need for tax or financial strategy or product guidance, you must be prepared to pay extra, either on an ongoing or fee-for-service basis.
It’s also crucial to note that cost isn’t the only element to consider when selecting whether or not to establish an SMSF. This is because maintaining an SMSF is not the same as putting your money in an APRA-regulated industrial or retail fund and only reviewing it when the half-yearly report or a market crash is mentioned in the press.
With an SMSF, you take on making important decisions about how your super is managed and invested. It is far simpler to examine an APRA fund statement than to be the one who presses the button to purchase or sell an asset during turbulent periods. You must be interested in watching and researching your chosen help or have the resources to outsource such activities.
Given the current market costs to service your SMSF, a balance of $145,000 may be the bare minimum for a viable fund. Still, I will stick to my recommendation of at least $200,000 with regular annual contributions, which means that the fund should look well above $350,000 within five years if everything goes well. In my opinion, it justifies the administrative costs and some decent advice and assistance to help users get the most out of the system.