Deciding whether or not to set up an SMSF is a significant financial decision that should not be taken lightly. Before you take the plunge, it’s essential to consider your personal circumstances carefully and whether you have the time, expertise, and commitment to manage your own super fund. Here are some key questions to ask yourself:
- Do you have the time and commitment? As we’ve seen, running an SMSF is a significant time commitment. You need to be prepared to spend a considerable amount of time on research, administration, and compliance. If you’re not prepared to put in the hard yards, an SMSF is probably not the right option for you.
- Do you have the financial and legal knowledge? You don’t need to be a financial expert to run an SMSF. Still, you do need to have a good understanding of financial markets, investment principles, and the laws that govern superannuation. If you’re not confident in your ability to manage your own investments and comply with the law, you should seek professional advice before setting up an SMSF.
- Is your super balance large enough? While there is no legal minimum balance for an SMSF, the costs of setting up and running a fund can be high. If your balance is too small, these costs will eat into your returns and you may be better off in a traditional super fund. As a general rule of thumb, many experts suggest that you should have at least $200,000 in super before you consider setting up an SMSF.
- Are you comfortable with the risks? With an SMSF, you are personally responsible for all investment decisions and the government’s compensation scheme does not cover you. You need to be comfortable with the risks involved and be prepared to accept the consequences of your decisions.
How Much Should You Contribute to Your Superannuation?
Regardless of whether you choose an SMSF or a traditional super fund, maximising your superannuation contributions is one of the most effective ways to build wealth for retirement. The Australian government provides generous tax concessions for superannuation contributions, making it an attractive investment vehicle for most Australians.
Understanding Contribution Caps
For the 2024-25 and 2025-26 financial years, the contribution caps are:
- Concessional contributions: $30,000 per year (includes employer contributions and salary sacrifice)
- Non-concessional contributions: $120,000 per year (after-tax contributions)
Concessional contributions are taxed at just 15% within your super fund, which is significantly lower than most people’s marginal tax rate. This makes salary sacrificing into super an attractive strategy for many workers. Non-concessional contributions don’t provide a tax deduction, but they allow you to boost your super balance with after-tax dollars, and the investment earnings on these contributions are still taxed at the concessional rate of 15%.
Contribution Strategies for Different Life Stages
Early Career (20s-30s): Even small additional contributions can make a significant difference over time due to the power of compound growth. Consider salary sacrificing any pay rises or bonuses into super, and take advantage of the government’s co-contribution scheme if you’re eligible.
Mid-Career (40s-50s): This is typically when your earning capacity is at its peak, making it an ideal time to maximize your super contributions. Consider using the full concessional contribution cap of $30,000, and if you have surplus cash, make non-concessional contributions up to the $120,000 cap.
Pre-Retirement (55+): If you’re over 55 and still working, you may be able to access some of your super through a transition to retirement pension while continuing to work and contribute. This can provide tax-effective income while allowing you to continue building your super balance.
The Power of Additional Contributions
To illustrate the impact of additional contributions, consider this example: A 30-year-old earning $70,000 per year who makes an additional $2,000 annual contribution to their super could have an extra $200,000 in their super balance by retirement, assuming a 7% annual return. This demonstrates why it’s crucial to start contributing as early as possible and to contribute as much as you can afford.
Comparing SMSFs with Other Super Fund Options
When deciding between an SMSF and other super fund options, it’s important to understand the key differences in structure, performance, and costs.
Performance Comparison
Historical performance data shows some interesting trends between different fund types. According to APRA data, in the five years to March 31, 2022, retail funds achieved an average annual growth of 3.1%, while the not-for-profit segment (including industry funds) achieved approximately 10.1% annual growth [3]. This significant performance gap highlights the importance of choosing the right fund type for your circumstances.
Industry super funds have generally outperformed retail funds over the long term, primarily due to their not-for-profit structure and focus on member outcomes rather than shareholder profits. However, the performance gap has been narrowing in recent years as retail funds have improved their offerings and reduced fees.
SMSF performance is harder to measure as it depends entirely on the investment decisions made by individual trustees. Some SMSFs achieve excellent returns through skilled investment management and access to unique investment opportunities, while others underperform due to poor investment decisions or high costs relative to fund size.
Fee Comparison
Fees can significantly impact your retirement savings over time. Industry super funds typically have the lowest fees, with many charging less than 1% per year in total fees. Retail super funds may charge higher fees, particularly for actively managed investment options, but competition has driven many to reduce their fee structures.
For SMSFs, the fee structure is quite different. Instead of percentage-based fees, SMSFs typically have fixed costs including:
- Annual audit fees: $2,000-$5,000
- Accounting and tax preparation: $2,000-$8,000
- Legal and compliance advice: $1,000-$3,000
- Investment costs: Variable depending on investment choices
- ATO supervisory levy: $259 for existing funds
For larger balances (typically over $500,000), these fixed costs can result in lower percentage fees than traditional super funds. However, for smaller balances, the fixed costs can be prohibitively expensive.
Investment Options and Flexibility
Traditional super funds offer a range of pre-mixed investment options, from conservative cash and bond portfolios to aggressive growth options with high equity allocations. Most also offer some level of choice through member direct investment options, but these are typically limited to listed securities.
SMSFs offer the ultimate in investment flexibility, allowing direct investment in:
- Residential and commercial property
- Listed and unlisted shares
- Term deposits and cash
- Collectibles (art, wine, classic cars, etc.)
- Cryptocurrency (with restrictions)
- Private equity and venture capital
- Commodities and precious metals
This flexibility can be both an advantage and a disadvantage. While it allows for potentially higher returns and better diversification, it also requires significant investment knowledge and can lead to poor investment decisions if trustees lack the necessary expertise.
Conclusion
A Self-Managed Superannuation Fund can be a powerful tool for building wealth and achieving your retirement goals. It offers unparalleled control and flexibility, allowing you to tailor your investment strategy to your specific needs and objectives. However, an SMSF is not a set-and-forget option. It comes with significant responsibilities and risks, and it requires a substantial commitment of time and expertise. Before you decide to set up an SMSF, it’s crucial to do your research, carefully consider your personal circumstances, and seek professional advice. By making an informed decision, you can ensure that you are on the right track to a secure and comfortable retirement.
If you are interested in looking at what an SMSF can do for you, call us today. Who knows: an SMSF could make you healthier and happier. We think it’s worth a phone call: (08) 6462 0888.
References
[1] Australian Taxation Office. (2025). Super guarantee percentage. Retrieved from https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee-percentage
[2] Association of Superannuation Funds of Australia. (2025). Retirement Standard. Retrieved from https://www.superannuation.asn.au/consumers/retirement-standard
[3] Canstar. (2025). Industry Super Vs Retail Super Funds. Retrieved from https://www.canstar.com.au/superannuation/industry-vs-retail/
[4] Australian Taxation Office. (2025). Your obligations as an SMSF trustee. Retrieved from https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/before-you-start-an-smsf/your-obligations-as-an-smsf-trustee
[5] Moneysmart.gov.au. (2025). Self-managed super fund (SMSF). Retrieved from https://moneysmart.gov.au/how-super-works/self-managed-super-fund-smsf
