This post is sponsored by Suncorp.
What if I told you that one take away lunch a week was worth $185,000.
Would you be surprised?
I’m all about how small savings make a big impact, but I have to admit that what I’ve recently discovered about salary sacrificing and superannuation left me pretty amazed. Now before you run off (yep I know I just mentioned two incredibly exciting topics), hear me out. Trust me, you NEED to know this stuff.
If you are anything like me, superannuation is not something you’ve given a great deal of thought to. If you’re in your 30’s or 40’s, paying off a mortgage and possibly raising kids, retirement seems a LONG way away. I know I’ve barely looked at the statements that come in the mail from my super fund and I wouldn’t have had a clue how much I had in super.
With compulsory superannuation now a part of everyday life, most of us assume that it will be enough when the time comes to retire. I was really surprised to discover that many of us (particularly women) will be WAY short of what we need for a comfortable retirement by relying only on compulsory superannuation contributions.
However, what I was even more surprised by, was how big an impact salary sacrificing into super could make to my final super balance, and how “cheap” this was to do. For just the cost of one take away lunch a week, I could add nearly $185,000 to my super balance. Ok, I’m in!
How salary sacrificing works
Salary sacrificing into superannuation is basically taking out part of your salary each week (or fortnight or month) before it is taxed and putting it into your superannuation. Obviously this helps you save for retirement in the long-term, but it also has the benefit of reducing your taxable income right now. This means that the actual amount your take home pay is reduced by is usually much less than the amount you are saving.
Who can benefit from salary sacrificing?
I asked Suncorp’s Executive Manager Superannuation, Cathy Duncan, about who would benefit from salary sacrificing to super, and specifically whether it would be worth it for me given I’m in my 30’s and not making a huge income.
“Anyone with a marginal tax rate of more than 15% could save some tax if they salary sacrifice, however if your marginal tax rate is 15% or less there’s no benefit. Check if it’s the best strategy for you; for those earning under $50,454, an after tax contribution may be more effective as you may be eligible to receive a government co-contribution.
“One of my top tips is to start salary sacrificing as soon as possible, however it’s never to late to start. How much you sacrifice really depends on your income and your personal circumstances, however no amount is too small and you’ll thank yourself when you reach retirement.”
Basically as Cathy explained, the earlier you start the better. By starting early you only need to put away a very small amount of money each week to make a huge difference to your future super balance. The only real exception is for those earning under $50,450 who may be better off contributing to super after tax to take advantage of the Governments co-contribution.
In terms of how much you should be saving, check out Suncorp’s superannuation calculator to give you an idea of how much you’ll have in retirement (and potentially how much you’ll be short!). If you click on “advanced settings” after your results are shown you can look at the difference various additional contributions will make to your balance.
While you are checking out your predicted future super balance, have a look at the cute superannuation game they’ve developed to help people better understand superannuation and salary sacrifice. I had to fight my four-year old for a turn and it was also a great way to talk to him about money.
It’s important to remember that there is a limit of $30,000 a year that you can contribute to your super ($35,000 for those over 49) and this amount includes the compulsory contributions (9.5%) that your employer makes.
I’m on a tight budget, is it really worth it?
If this all sounds good but your budget is tight and superannuation doesn’t seem like a priority, it’s worth having a look at what salary sacrificing might really mean for your actual take home pay.
One thing I was surprised to discover was how little a small salary sacrifice into super each week would impact my take home pay. Salary sacrificing to super reduces your taxable income so you pay less tax. What this means is that for most people, the drop in their take-home pay is less than the amount of extra money going into their super.
For example. Let’s say you are 25 and you earn $40,000 a year. If you salary sacrificed $20 a week into super this would only reduce your take home pay by $13 a week (one take away lunch!) and depending on how your investments go, you could end up with approximately an extra $185,000 by retirement.
Are you a bit past 25? Yep… me too. Even if you didn’t start until you were 45, the difference could still be over $42,000. Starting at 35 could see you bump up your balance by almost $95,000.
Ok, I’m in. How do I salary sacrifice to superannuation?
It’s way easier than you’d imagine. Once you’ve worked out how much you can afford to set aside each week just get in contact with your employer (probably the payroll department) and ask them to divert that amount into your super each pay. It’s usually just a matter of filling in a form. Set and forget…
I know this really has been a wake up call for me. It is so simple and incredibly affordable for something that will make such a huge impact on our future finances. I certainly can go without one take away lunch a week in exchange for $185,000. How about you?
Do you salary sacrifice to super? Would you consider it? Do you have any questions?
None of the information discussed here constitutes financial advice. This article is for information purposes only and you should discuss your personal financial situation with a qualified accountant or financial advisor.