Are you worried about retirement? If you’re like many people, the thought of having to survive solely on your savings in retirement, might not sit too well.
But the good news is, it’s never too late to start growing your retirement income no matter what your situation.
Salary sacrificing into super is effectively a long-term wealth strategy that may help to grow your retirement savings over time. We take a look at how it works, the benefits and some things to consider.
What is salary sacrificing into super? Salary sacrificing into super is really about sacrificing some of your income now, to save for your retirement. This means you’re not just relying on your employer’s regular super contribution of 9.5 percent to save for your future.
How does salary sacrificing into super work?
It can involve setting up an arrangement between you and your employer whereby you agree to contribute an additional amount into your super from your pre-tax income.
As you’ll essentially be taking home less money, you may want to consider calculating how much of your income you can afford to give up. There are a number of calculators available that may help you with this.
So, what are the benefits of salary sacrifice into super?
Salary sacrificing into super offers a number of benefits. These include:
- The amount you salary sacrifice into super is generally taxed at 15 per cent, which for most people will be less than the tax you may pay on that income1 personally if it was paid to you as salary. This also means you will reduce your taxable income as you’ll essentially be taking home less money.
- What you earn off your investments inside super is taxed at 15 percent, which may be less than the tax you may pay on your investment earnings outside super.2
- You have additional money being saved towards your retirement, with these regular savings happening automatically for you.
There is also the added power of compounding returns. As you start adding more money to your super account, you may earn returns on that extra amount over time. So, it’s that little bit of returns you earn in the early stages that can make a difference in the end.
What are the restrictions with salary sacrificing into super?
There are a couple of important things to keep in mind if you’re thinking about salary sacrificing into super.
The tax benefit is only available if you contribute no more than $25,000 per year3 from your pre-tax income. This includes the regular super guarantee contributions made by your employer.
It’s also important to remember that the extra money you contribute into super is generally not accessible until you retire.
For further information, or assistance with your salary sacrifice, please contact a Nexia advisor.
1 - ASIC Moneysmart: https://www.moneysmart.gov.au/ superannuation-and-retirement/how-super-works/ super-contributions/salary-sacrifice-super
2 - ASIC Moneysmart https://www.moneysmart.gov.au/ superannuation-and-retirement/how-super-works/ tax-and-super
3 - Australian Taxation Office: https://www.ato.gov.au/Rates/ Key-superannuation-rates-and-thresholds/?anchor=Conces sionalcontributionscap#Concessionalcontributionscap