Double rewards of super add up
Boost your retirement income while you can, writes Anthony Keane
ONE quarter of workers are boosting their superannuation through salary sacrifice and potentially giving themselves hundreds of thousands of extra dollars at retirement.
New research has highlighted the double reward savers can get from salary sacrifice: a bigger nest egg at retirement and tens of thousands of dollars of tax savings along the way.
Canstar’s number crunching found a 35-year-old worker with an average super balance of $46,500 and average wage of $86,000 could increase their retirement balance by almost $35,000, plus save almost $7500 of tax, if they salary sacrificed $100 a month – about $23 a week.
If they lifted their salary sacrifice to $500 a month – or $115 a week – their final super balance would be $174,000 more and they would save an additional $37,000 in tax.
Canstar spokeswoman Effie Zahos said there was a definite double benefit from salary sacrifice, but many people didn’t consider the tax savings. “I wish we didn’t say it’s a salary sacrifice,” she said. “People feel pain when they hear they’re sacrificing their salary.”
But the money remains yours to invest and grow, with the only barrier being your inability to withdraw it until retirement.
A Canstar survey found 25 per cent of people salary sacrifice into super, while another 12 per cent want to.
“Super has all the key elements of wealth creation,” Ms Zahos said.
It was a long-term investment, allowed you to add money on a regular basis, and there were tax perks, she said.
When salary sacrificing, people pay only 15 per cent tax on their money deposited rather than higher marginal tax rates of up to 47 per cent.
“It’s good news that people are starting to realise that even $20 can make a difference,” Ms Zahos said.
“It could give them an extra year of living comfortably.”
Wealth on Track principal
Steve Greatrex said it had become more important to salary sacrifice “earlier and younger” because the government’s $25,000 cap on tax-deductible contributions included both compulsory employer payments and your own deposits.
“The paradox is the more money you earn from an employer, the less you can put in personally,” he said.
The First Home Super Saver scheme was another incentive for young savers to salary sacrifice because they could later withdraw that money for a house deposit, Mr Greatrex said.
He said some new salary sacrifice clients were initially worried about not having enough money left in their pay-packet.
“Later they say ‘I didn’t really notice it’. That’s because of the tax effect – it’s very powerful stuff,” Mr Greatrex said.
The forced discipline of setting up salary sacrifice in advance makes it an investment winner.
“Like any good savings plan you have got to automate it,” Ms Zahos said.
“The more we earn, the more we spend … salary sacrifice is a no-brainer.”