The Super Benefits of Sacrifice

Are you prepared for retirement? Or want a large tax break this year?

Everyone can do one simple thing to get a great tax break every year and help prepare for retirement. It is the biggest single question almost anyone in Australia over the age of 30 should be concerned about. With the ability to live longer and retire early, many are not fully prepared financially to provide for themselves in retirement.

Have you considered Salary Sacrificing into your Super account? Suncorp Super has developed a great way for you to learn, as explained below.

Salary Sacrifice Explained Plainly
In order to boost your Super account for retirement and get a great tax break every year, there is a simple solution that does not cost too much and is easy to do; Salary Sacrifice.

Salary Sacrifice is where you take a few dollars from each paycheck before tax and put it in your Super account, before it goes to your bank account. This pre-tax contribution gets taxed at only 15% maximum instead of your normal marginal tax rate. Unless you earn over $300,000 a year, which is when the tax rate goes up to 30%. With as little as $10 dollars a week added to your Super, you can benefit from over $100 tax savings a year and over $26,000 added to your Super account at age 65.

The Super salary sacrifice, deducts the amount from your full earnings in a year reducing your taxable earnings as well as putting money regularly into your Super account at a much lower tax rate. You get the dual benefit of saving for retirement while lowering your marginal tax rate.

Benefits of your Sacrifice
By contributing regularly to your Super account, this sacrifice directly benefits you. Anyone that participates in the salary sacrifice program can benefit from it. When you do not add to your Super account balance, in most instances your company contributions of 9.5% of your annual salary often will not meet your retirement lifestyle needs. In fact without salary sacrifice, most Australians will not have enough retirement savings to maintain their lifestyle.

Check with your employer to see if they offer salary sacrificing because by adding to these base contributions of 9.5% by as little as a coffee per day or even a bottle of wine a week you could make your retirement lifestyle the difference between modest living and a comfortable lifestyle. The best part is, although it is called a sacrifice of your salary, the actual difference in your pay is often quite small in comparison to your realised gains.

Here are some frequently asked questions on salary sacrifice answered by Cathy Duncan, the Executive Manager Superannuation at Suncorp.

• Can self-employed people salary sacrifice? Self-employed people can claim a tax deduction for their super contributions. Most people can contribute up to $30,000 per year and the tax benefit will be similar to an employee salary sacrificing.
• What happens if both partners aren’t working and are on benefits? For those who aren’t working, and can afford to put some money aside, they can contribute these to their super fund.
• What’s the average amount people are sacrificing? It really depends on your own circumstances and what you can afford to put aside. If you are getting serious, you might like to contribute up to your contributions cap.

Small Pain, Lots of Gain
Here are some examples that show just how easy it is to realise a comfortable lifestyle at retirement without truly affecting your current lifestyle by too much. If you do not want to give up your current lifestyle, Salary Sacrifice is great, because of the pre-tax contribution mechanics that allows you to do so.

The $100 Sacrifice!
Although it sounds like a huge sum, 55-year-old John has decided that his $100,000 salary can afford the $100 per week sacrifice. This reduces his take home pay from $73,053 to $69,881 – an annual reduction of $3,172 or $61 per week – yet this adds about $50,000 to his Super account by retirement age and saves him $608 in tax per year.

$10 becomes $26,000
In this next example, 30-year-old Hamish feels he can only afford $10 per week and earns $68,000 a year before tax. However, such a small amount over the course of a career can turn into an additional $26,000 in his Super account, while still providing $100 worth of tax savings per year.

No matter your situation, taking even as little as $10 a week from your pay into a Salary Sacrifice program can make a big difference in retirement. Do you only want to subsist on the basic necessities in retirement, or through a small salary sacrifice, would you rather be able to do some travelling, have an entertainment budget or help your children and grandchildren?

Your Choice, Within Limits
For the most part the amount you deposit into this program is up to you and should be based on your anticipated needs in retirement, your current retirement savings and the type of lifestyle you want in retirement. However, there are Australian government mandated limits on your contributions into your super as shown below:

• 48 years old and under can contribute up to $30,000 pre-tax
• 49 years old and over can contribute up to $35,000 pre-tax
• After tax, you can contribute up to $180,000 per year.

These are quite liberal limits, allowing most people to put exactly how much they can afford into a program that can ensure a comfortable retirement.

Get Started, Learn the Game
If you are not sure exactly what your salary sacrifice amount should be, Suncorp Super has produced a fun way to help you understand superannuation and salary sacrifice. Their new interactive game can get you started on the road to financial success and happy retirement dreams in a few easy steps.

Check out Super Slinger

Learn investing into your retirement the easy and fun way. Once you have it mastered, you can then get started on Salary Sacrificing.

It’s as easy as contacting your employer or the Human Resources department at your work to enquire about the salary sacrifice options they offer. Most often the employer offers a simple form to fill out and an amount of your gross salary that you want put into your super each pay.

Do not sacrifice a life of luxury in retirement by not contributing just a few dollars a day into your superannuation now.