How much do I need to have to make getting an SMSF worth it?
When it comes to the minimum viable SMSF balance, for many it’s more about the why and not the balance. Although, for my personal family SMSF it was $200,000, as I believed that until my wife and I had that much in the fund, the administration costs as well as my additional time and effort would not justify having a self managed superannuation fund.
Thankfully in the last few years it has become more a personal decision rather than a purely financial decision. The personal decision revolves around a desire for more transparency, to have more control or to adopt a hands-on approach to the management of retirement funds. Often it is a wish to combine a couple’s funds together to achieve economies of scale or the flexibility to fund a property purchase in superannuation with or without borrowing.
What costs are involved for an SMSF?
In the government’s 2009 Super System Review, they noted that SMSF members are on average older, earn more and have larger superannuation balances than the average worker, with the average SMSF member balance being $456,000. There is good reason for that; to quote Jeremy Cooper: “On average, SMSFs with $200,000 or less had both higher proportional costs than would be charged in a public offer fund and did not perform as well as larger-sized SMSFs.”
Here is why SMSF fees are no longer a major issue:
Fees for administration and auditing have plummeted with the availability of data feeds from bank accounts, share trading platforms and managed funds, combined in many cases with outsourced back office administration to overseas. So if you want to manage all the investments yourself, here are the approximate costs you are looking at:
Once off SMSF Setup Fees
- Trust Deed : $150-$500
- SMSF Sole Purpose Trustee Company: $500 – $880
SMSF Annual Costs
- Online Accounting Admin & Audit (Basic service with little or no tax, accounting or structure advice): $665 – $1660
- Annual ASIC Corporate Fee: $45
- ATO Supervisory Levy: $388 ($518 for new funds in 2014)
- Add in five Share/ETF/Hybrids trades per year at an average $33
- No charge for bank account, term deposits or IPOs.
So you are looking annual costs of $1,263 upwards. On the basis of the 1% fees rule of thumb that would mean someone with $126,300 would find it achievable to run a SMSF cost effectively.
Remember these are the base fees and once you add the requirement for tax or financial strategy or product advice then you must be prepared to pay more either ongoing or as a fee for service.
The competitors to SMSFs talk about returns, asset allocations and fees and commissions and they completely miss the “sleep factor” that many people appreciate with an SMSF. People love the transparency, security and control, even if for the most part the same attributes are marketed as available in “Member Directed” industry or retail funds. You see, after the GFC many people just do not seem to trust the big players anymore and the internet and technology means they don’t have to, either.
So in context of the current market costs to service your SMSF, $125,000 may be the minimum required for a viable fund but I will stick to my recommendation of $200,000 with regular annual contributions meaning that within 5 years the fund should well above $300,000. This justifies the administration costs and some decent advice and guidance to help make the most of the system.
At Canstar, you can compare SMSF Savings Accounts, and below you can see a snapshot of the current products in our database. Please note that this table has been generated based on having current savings of $200,000 in NSW, and the display is sorted by total interest (including bonus – highest first).
Read more about Liam Shorte here.