The answer to this question is that, it just depends on the circumstances.

Age will certainly have an indirect influence on whether an SMSF will be a viable option for you.  But this depends on whether you are able to accept the responsibilities that go with the territory of having an SMSF, understanding fund investments and the amount you have to start or accumulate within the SMSF.  Of course, it is your choice whether you operate the fund as you wish or engage professionals in areas where you don’t feel you have the skills.

Joint research from SuperConcepts and the University of Adelaide’s International Centre for Financial Services released earlier this year revealed when a fund reaches a balance of $200,000, the benefits of investment diversification start to kick in.

You should be able to answer the following basic questions if you are going to have an SMSF:

• Are you prepared to act as trustee of an SMSF?

Being a trustee of an SMSF means you have absolute responsibility for all aspects of the fund from receiving contributions, investments and paying lump sums or pensions. Of course, you can employ others to help you with navigating the rules and regulations.

• What level of control of your superannuation are you after?

Your answer should consider your level of involvement with the day to day operation of the fund, investment decisions and compliance and outsourcing those services where you don’t have the skills or it saves you time and money by getting someone else to do it.

• Do you understand what is required with the investments of an SMSF?

Having an appreciation of the types of investments that are available is important as well as how they perform when the markets change. After all, it’s your money and you need to look after your retirement savings.

• How much will it cost to establish and run an SMSF?

There are costs associated with setting up your fund which includes the fund’s trust deed and registration with the regulators. In addition, there are the ongoing costs involved with the day-to-day operations such as investing, accounting and compliance.  The costs of having an SMSF may be influenced by what you are prepared to put in with running the fund.

Some Useful Case Studies

Let’s have a look at a few case studies to help you work out whether an SMSF is suitable at various ages.

Under 18

Todd

Todd’s mum and dad have an SMSF and Todd has been very successful appearing in ads on TV.  While they don’t wish to limit the amount Todd holds personally they suggest that he may like to contribute to superannuation while he has the money.  They impress on him the benefits of compound interest as well as the benefits of having the money in the fund for many years.

Todd makes some deductible and non-deductible contributions to the SMSF which will remain in the fund until he retires.

Under 30

Mark

Mark has worked full time since he was 21 and each employer has made superannuation guarantee contributions to his fund.  This has accumulated to just over $70,000.  He has no plans to increase the amount he wishes to contribute to superannuation and will rely on his employer’s contributions until he has a property and has settled down.

Maybe Mark should consider whether an SMSF is suited to him over the next 10 years.

Dina

Dina has worked since she was 18, has moved through the ranks of a company that she is now a general manager and is on a six figure salary.  She has salary sacrificed the maximum to superannuation and the balance she has in the company fund has grown to just over $430,000.

The questions for Dina to answer is whether she is prepared to take responsibility to be involved in the operation of an SMSF, supervise the investments and meet the compliance requirements on an ongoing basis.  If she understands how she can play her part with the fund and also engage professionals if she doesn’t have the skills, then an SMSF could be the right choice.

Under 50

Corrine and Peter

Corrine and Peter have a small business which has gone well over the years.  They have contributed as much as they saw as a reasonable amount to superannuation which has now grown to over $1.2 million.  They are thinking of expanding their business and are considering purchasing a property to house their business rather than leasing it.  They have been to their accountant who has provided tax advice on the effectiveness of what they have in mind.

They decide to purchase the property outright through their newly established SMSF, as they can see the benefits to building their retirement savings in a more tax effective way as well as the benefits of leasing the property from their superannuation fund.  Providing they understand their responsibilities as trustees of their SMSF, it looks like the decision will be a sensible choice.

Under 65

Emma and Richard

Emma has just retired and her partner, Richard, has a few years to go before he stops full-time work.  They are both members of a number of superannuation funds due to different employers over the years and are now thinking of consolidating their superannuation into one fund. Richard has always had a keen interest in investments and investing, and understands what is required.  Emma’s interest has been in real estate and she understands the market much better than Richard.  As they see it, superannuation is ‘their money’ and they are willing to take responsibility of running an SMSF now they are in an age of retirement, as they call it.

As Emma and Richard are under 65 they are able to make tax deductible and non-deductible contributions to the fund, if they qualify without having to meet any work tests.  However, depending on how much they have in superannuation there may be restrictions on the amount of non-deductible contributions they can make.

65 and over

Jane and Tom

Jane and Tom are both over 65 and continue to work two or three days each week in a small shop which is gradually being taken over by their daughter.  They have accumulated just over $2 million in superannuation and have some investments held in their own names.  Their accountant has suggested a number of times that they could be better off tax-wise if their investments were in an SMSF, as they could reduce costs and take full advantage of franking credits on any shares the fund invests in. Jane and Tom seek the advice of a financial planner who recommends that an SMSF is suitable because they are willing to take control of the fund and understand the responsibilities of running the fund.  They appreciate this could involve employing professionals who specialise in SMSFs where they don’t have the appropriate skills such as fund administration.

As Jane and Tom are working at least part-time, it’s possible for them to make contributions to superannuation up to the time they are 75 if they continue to work at least part-time (40 hours in 30 consecutive days at any time during the year).

When to Start an SMSF

As you can see, there are many situations in which an SMSF can play a useful role with a person’s retirement savings.  Sometimes age will have an influence, while at other times it will be the willingness to undertake the responsibilities of running the fund.  In the end, the circumstances in which an SMSF will be most beneficial are entirely down to you and how you see the advantages over other types of superannuation arrangements.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.