Case Study: Boosting Your Superannuation Via Salary Sacrificing
The Power of Salary Sacrificing for Superannuation Growth
- Her taxable income reduces to $80,000.
- The $10,000 goes into her super fund and is taxed at the concessional rate of 15% (assuming this rate hasn't changed), which is $1,500. So, $8,500 gets added to her super balance.
- Tax Savings: Without salary sacrificing, if Sarah were to invest the same amount from her after-tax salary, she would first pay her marginal tax rate on that $10,000. Given her income, let's assume her marginal tax rate is 32.5% (excluding the Medicare levy). This means she would pay $3,250 in tax on that amount, leaving her with only $6,750 to invest. By salary sacrificing, she effectively saves $1,750 in tax ($3,250 - $1,500) each year.
- Compounding Growth: The earlier Sarah starts contributing extra to her super, the more she can benefit from the power of compounding. By consistently salary sacrificing $10,000 annually, not only does she add that amount to her super, but she also earns returns on that amount, which in turn earn returns in subsequent years.
- Greater Retirement Savings: Over 30 years, assuming an average annual return of 5% on her super investments, Sarah's salary sacrificed contributions alone could grow to over $500,000 by the time she retires at 65. This doesn't even account for her regular super contributions or any other investments.
- Flexibility: Sarah can adjust the amount she salary sacrifices if her financial situation changes, giving her flexibility in her savings strategy.
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