The first deadly sin of self managed super

Welcome to the new financial year, and to the first in a series of seven (how surprising!) articles regarding the main issues to watch out for regarding self managed super funds.

Self managed super is a complex area, and while the basics are reasonably straight forward – get a trust deed, open a bank account and you’re on your way – there are many opportunities to both do a great job of organizing your retirement income and estate planning and on the other hand, to really stuff things up.

Our first deadly sin of self-managed super is ‘it’s all about the investments you choose’. On the face of it, many people get an SMSF because they want to control their own future, which generally translates as ‘I want to pick my own investments’. And there’s so much media around investment choice that it’s easy to think that your investments are the most important choices you make with regards to your super. But that’s simply not the case.

The MOST important thing you can do with your self managed super (or in fact any sort of super or retirement plan) is to make a plan, and to familiarize yourself with the basics of the legislation. Here’s a few hints when it comes to your plan:

- Remember that the whole point of super is to replace your income from your job. So rather than looking at your super balance, look at the income you are going to receive when you retire. As a wise man once said ‘you are independently wealthy when the income from your investments can replace the income from your job.’

- Make sure you are putting enough in. Many Australians are in for a nasty shock when they get close to retirement and realize that even $1million in super can only provide a modest income if you want your money to last. People used to leave it until very close to retiring to start ‘dumping’ money into super. But that’s not so easy now with the restrictions on contributions.

- Estate planning. No-one wants to think about falling off the perch, but dying and leaving a big mess is not a good legacy. If you want to have a decent chance of having your wishes followed, you need a binding death benefit nomination. And don’t forget, the trustees of the SMSF hold the purse strings. So if you are worried that your third wife is starting to not like you or your kids very much, then consider separate funds, or not using an SMSF at all. A quality accountant, financial planner or lawyer can help you figure all this out.

Speaking of quality advice, about half of all SMSFs use an accountant to help them navigate the rules - you can also consult a financial planner, a lawyer, or the myriad of articles and information available on the internet.

Unfortunately, it can be very tricky to know who are the real experts are. Plus, there tends to be no love lost between financial planners, accountants and lawyers, when the truth is that ideally you want all three on your team!

SPAA (the self managed super fund professionals of Australia Association) has an adviser search that will show you SMSF specialists that have passed SPAA’s stringent testing requirements. If you don’t know where to start, find a few advisers in your area using the SPAA search and have a coffee with them to see who you gel with.

Or alternatively, if you really want to go the pure DIY route (and there’s nothing wrong with that) the ATO has some great resources to guide you through the process.

So in summary, get a plan, get some help, and don’t worry too much about picking the perfect investment. Good luck with your SMSF, and look out for the next installment in my ‘seven deadly sins of SMSF’ series.