When is a good time to start an SMSF?

Traditionally, Self-Managed Super Funds (SMSFs) were seen as a strategy for an older generation. However, during the past few years, we’ve seen a significant shift toward a younger cohort from all walks of life taking control of their financial futures. A new generation of financially literate individuals, coupled with risk-positive attitudes, is a factor driving the surge in the number of active SMSFs in Australia.

Starting an SMSF is not dependent on age; however, those thinking of doing so must consider their financial capacity, financial and investment knowledge, time, and long-term goals. While managing an SMSF provides control, it requires diligence and professional oversight.

Younger Australians, like those nearing retirement, are motivated to start an SMSF to have enhanced control over where and how their money is invested. SMSFs enable individuals to invest in commercial property, collectibles, ASX-listed shares, and cryptocurrency, subject to rules, offering greater flexibility and the potential for greater gains. If you have experience and are confident in your investment knowledge and capability, this flexibility is highly attractive.

SMSF come with costs, however they do become more cost positive with a balance exceeding AUD$250K. For younger trustees your balance is growing and when combined with other members, such as a spouse or partners the economics work more favourbably sooner.

They are a strategic vehicle to stimulate wealth buidling. Using limited resource borrowing arrangements (LRBAs) younger trustees can purchase property within their SMSF for accelerated returns outside traditional superannuation funds.
At North Advisory we work with younger high earning individuals and business owners who are developing intergenerational wealth strategies. SMSF are an ideal solution for tax-effective estate planning in these situations.

SMSFs offer trustees excellent potential but they are not without challenges. For younger Australians thinking about a SMSF it is highly recommended to seek professional advice before committing. They require an advanced understanding and more responsibility than you may be aware of.

The trustee is legally responsible for compliance. This takes time and a level of administrative acumen. Trustees must lodge an annual return, maintain accurate records, employ an SMSF auditor and ensure investments and strategies are compliant with SIS Act regulations.

SMSF cost money to set up and maintain. Trustees will have continued accounting fees and audit costs. Additionally, ATO data highlights the need for professional oversight. Trustee compliance breaches are common and tend to be more severe in the first five years of operation. Insufficient or inadequate documentation and poor investment planning are the major issues. It is essential that new trustees stay informed and seek professional assistance.
An important consideration for younger trustees is risk. Youth has a risk positive attitude, which is not a bad approach, however, some trustees can lean toward speculative assets with high growth potential. SMSF must be able to meet its liabilities, including pensions and death benefits, and illiquidity is a compliance issue.

If you’re considering an SMSF readiness is more important than age. A professional and qualified financial advisor can be of great help in assessing your readiness. As a financial advisor I ask my potential clients:

• Is your superannuation balance nearing $200K either individually or combined with a partner?
• Do you have sound financial literacy skills and or are you prepared to seek and follow professional financial advice? Why do you want
• to start a SMSF? Are you not satisfied with your retail or industry fund?
• Do you want to invest directly into property or more unique asset classes or simply take a more active role in your investments?
• Are you willing to employ a long term investment strategy and commit to the ongoing compliance requirements?

Positive answers to these questions tend to indicate that you may be “ready and able” to commit to a Self Managed Super Fund.

Starting a SMSF earlier rather than later can be a savvy move, but ensuring you do the checks and balances before committing is essential. With the right investment strategy aligning with your risk profile and having professional financial guidance, you are well positioned for success. Remember, any form of superannuation is a long term investment and decisions affecting your retirement and future financial lifestyle should not be taken lightly.