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A little to save a lot

I keep reading about how salary sacrifice can help boost your super. Could you explain what salary sacrifice is and how it helps?

As it sounds, this involves giving up some of your salary to super, which, as well as being tax-effective, will turbo-charge your retirement savings. If you are in a high tax bracket, the saving can be big. Imagine you took $20,000 out of your wage into super via this method – the tax on the wage could be 45 per cent or $9000.

On the other hand, the super tax is 15 per cent or $3000. That means you save $6000, which rolls over and over in your super fund. New rules limit the amount you can sacrifice to $50,000 for those younger than 50. For 50 year olds and above, there is a five-year window to salary sacrifice up to $100,000.

I have seen an example of someone with only $50,000 in super at age 50 earning an $80,000 salary end up with $150,400 assuming an eight per cent return per annum and inflation of 2.5 per cent.

By sacrificing $300 a week into super, this amount would rise to $312,600. You can even put in your post-tax dollars into your super which won’t be taxed again on the way in and the new limits for these un-deducted contributions or after-tax contributions is $150,000 a year.

There are different rules for ages 65-plus but, as you can see, this is an area worth becoming an expert on to really boost your super. And remember, after you turn 60, you can take your super monies out without tax being applied, making this kind of investment very attractive.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, August 03, 2010

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