Salary sacrifice is one of the most effective ways to grow your super savings while potentially paying less tax.
Topping up your super using your salary can be a great way to increase your super balance at retirement. You simply need to speak to your employer and request that they pay part of your pre-tax salary into your super fund*.
Remember there are limits on how much you can put into super each year by salary sacrificing. Most people can contribute $25,000, including the employer’s 9.5% super guarantee contribution.
To highlight the benefits of making small additional contributions to your super over time, here we provide a case study comparing the retirement outcomes of two different investors. Meet Jenny, aged 30, and Simon, aged 45, who are both LGS members. Jenny starts adding an extra $100 per month to her super fund at age 30, while Simon salary sacrifices $300 per month from age 45. Even though Simon has contributed a greater amount to his super, Jenny will have $103,698 extra at age 60 and Simon $80,825. Why? Jenny has had longer for her super to benefit from reinvested returns.
|Age starts salary sacrificing||30||45|
|Investment timeframe||30 years||15 years|
|Total amount invested (after contributions tax)||$30,600||$45,900|
|Balance at age 60||$103,698||$80,825|
Calculations assume a 7% annual return and 15% contributions tax. This example only takes into account salary sacrificed contributions.
*Speak to your employer to see if a salary sacrifice arrangement is available.