How Much Fund Do You Need to Set Up a SMSF?

Setting up a Self-Managed Super Fund (SMSF) is a significant financial decision that requires careful consideration. I remember when I first started looking into it, I was overwhelmed by the conflicting information out there. While there’s no legal minimum balance required to establish an SMSF, recent research suggests that a balance of $200,000 or more is generally recommended for cost-effectiveness.

The $200,000 Threshold

Recent studies commissioned by the SMSF Association have led to a revision of previous guidance on SMSF balances:

• Research conducted by Rice Warner found that SMSFs with $200,000 or more become broadly competitive with industry and retail superannuation funds[1].
• A study by the University of Adelaide confirmed that $200,000 is an appropriate balance for SMSFs to be cost-effective[1].

These findings have prompted the Australian Securities and Investments Commission (ASIC) to remove references to $500,000 as the point at which SMSFs become cost-effective[1].

Cost Considerations

When determining how much money you need to set up an SMSF, you need to consider both setup and ongoing costs:

Setup Costs

From my research and conversations with SMSF advisers, initial establishment costs typically range from about $1,500 to $2,500. This covers:

• SMSF setup fees
• Trust deed preparation
• ATO registration
• Corporate trustee setup (if you go that route)

Ongoing Costs

Annual running costs can vary widely. I’ve put together a rough breakdown based on ATO data:

These costs cover auditing, accounting, and compliance. It might seem steep, but many trustees I’ve spoken to say the control they gain is worth every penny [2].

Performance Considerations

Here’s where it gets interesting. SMSFs with balances over $200,000 have been showing some impressive results:

• SMSFs with net assets exceeding $200,000 outperformed APRA-regulated funds in two out of three years between 2017 and 2019[1].
• Funds that diversify beyond cash and term deposits tend to do better[1].

One trustee I spoke to, let’s call him Bob, saw his SMSF outperform his old retail fund by 3% last year. But always remember that past performance doesn’t guarantee future results.

The Bottom Line

While $200,000 is increasingly seen as a reasonable starting balance for an SMSF, it’s important to remember that this is not a hard and fast rule. Your decision should be based on various factors, including:

• Your financial goals
• Investment expertise
• Time commitment
• Willingness to handle administrative tasks

If you’re considering setting up an SMSF with less than $200,000, it’s advisable to carefully weigh the costs against the potential benefits and seek professional advice.

Managing an SMSF can be incredibly time-consuming. Did you know that SMSF trustees spend an average of 100 hours per year managing their fund[3]? That’s a significant time investment that could be spent on other pursuits or simply enjoying life.

This is where Top SMSF comes in. We understand that while you want control over your financial future, you may not want to sacrifice all that time. Our team of experts can handle the complex, time-consuming tasks of SMSF management, allowing you to maintain control without the hefty time commitment. And the best part? Our services are priced very competitively, ensuring you get professional assistance without breaking the bank.

So, are you ready to enjoy the benefits of an SMSF without the time-consuming hassle? With Top SMSF, you can have the best of both worlds – control over your financial future and more time to enjoy it. Remember, it’s your retirement we’re talking about here, and we’re here to help you make the most of it.

References: [1] https://www.superguide.com.au/smsfs/smsf-setup-and-running-costs [2] https://www.industrysuper.com/understand-super/smsf/costs/  [3] https://www.morningstar.com.au/insights/retirement/234915/how-much-does-it-really-cost-to-run-an-smsf