Fri 12 Jan, 2018

Busted – The $200,000 SMSF myth

You can have a well-run and profitable self-managed super fund for a lot less than $200,000.

At some point you’ve probably looked at the balance sitting in your stock-standard, grey-beige flavoured superfund and thought: “Blimey by golley! What on earth are those people at the superfund doing with my money. It isn’t getting anywhere after all those years.” You are picturing a bunch of corporate types earning a nice fat commission from investing your money inleaving you with almost nothing.

You don’t mind the fact that the Government has made it compulsory for you to set money aside for superannuation, but you hate not having any control over how that money is managed. Besides, you’ve looked at the balance in your super fund many times and thought to yourself that you could easily use that money as a deposit for buying yourself a property. If. Only. You. Could. Get. Your. Hands. On. It.

So here’s the answer to your prayers: set up your own self-managed super fund (SMSF). With an SMSF, you can get your hands on your super and you use it for investing in whatever you wish to – as long as you stick to the Government’s rules and regulations around it. And, if you choose to join Squirrel and set up your SMSF with us, then sticking to those rules will be easy as we will hold your hand pretty much all the way.

SMSF cost-effectiveness

So how much do you need to start the journey to independence? There are rumours floating around that you need at least $200,000 to make having your own SMSF worthwhile. Well, quite frankly, it isn’t true. Let’s bust that myth right now. The $200,000 figure is based on the average cost of running an average SMSF, which the ATO worked out to be $5,100 per year in 2011.

A Squirrel Self-Managed Super Fund is not average.

A Squirrel SMSF is unlike others as the company has slashed the costs associated with running a self-managed super fund. Squirrel administers your SMSF for a flat fee that’s way, way lower than the average. 

Squirrel’s flat fee covers all the usual things that you would need to be able to run an SMSF successfully, such as:

  • SMSF setup
  • SMSF admin
  • SMSF online access
  • SMSF daily accounting
  • SMSF auditing

The company also helps you by giving you unbiased support about the following:

  • SMSF investment properties
  • SMSF share trading
  • SMSF term deposits
  • SMSF bullions
  • Other SMSF investments
  • SMSF education and courses

To give you an example of how cost-effective it is, consider the following: most retail super funds charge you a fee of 2% based on the balance of your account. So the more you have, the more you pay. And you have no control or choice over how your money is spent by them.

Naturally this makes Squirrel’s flat fee a much better option. Then keep in mind that this flat fee is per fund (not per person), which makes it even cheaper if you and your partner combine your super assets.


Invest in real estate with your super

In addition, having an SMSF is the only way you can directly use your super for investing in real estate, which for many Australians, is a much safer investment option and an asset they are familiar with.

As a Squirrel self-managed super fund can have up to four members, you are also provided with the opportunity to pool your money together and increase your investment opportunities.

To give you an example, if you personally have $35,000 in super, and your partner also has $35,000, and you combine your super money, then the total of $70,000 in super can be used to take out a mortgage on an investment property. You can not do this with a retail fund.

A balance of $70,000 in your SMSF account will allow you to take out a mortgage for a property valued at $220,000.

Let’s say that you have an annual salary of $60,000 plus super. When you combine the rental income generated by your investment property with the 9.5% compulsory super that your employer has to pay into your SMSF, then this will be enough on average to service the loan repayments, as well as cover expected maintenance and upkeep on the property.

This will provide a buffer to cover most unexpected costs that may occur, and if these unexpected costs don’t occur, then the cash will grow in your SMSF fund – maybe it will grow enough to purchase a second property.

Based on data obtained on 5/10/2016, for $220,000, you can currently purchase houses or apartments across 520 different suburbs in Australia. Now you can tell your retail fund where to go.

Happy house hunting!