Consolidate and Sacrifice – Be Super Smart
“Each person should now work out a plan to grow their super towards the $1.6 million limit by retirement using time and the power of compound interest.”
How many super funds do you really have?
Do you have more than one superannuation fund? Of course you do. Most of us aren’t sure where our super is, let alone what return it’s making or what fees the fund managers are charging.
And you’re probably not making the most of the tax breaks associated with salary sacrifice into your super fund. Why? We’re too young. There’s plenty of time. It’s not important now. I’ll think about it later.
Wrong. The best time to start a salary sacrifice plan is when you’re young, and at the beginning of a new financial year. Sacrificing income into super at any time has benefits but doing so from the start of the year makes it easier to maximise the benefits over the whole year.
Salary sacrifice saves money for retirement and, for most workers, reduces their total tax paid. Hopefully we will all be old, retired and dependent on investments for income one day. Salary sacrifice is the most tax efficient way to save for that.
So for the boring stuff…
… Working people pay 21% tax including Medicare Levy on income from $18,200 to $37,000, 34.5% tax from $37,000 to $87,000 and 39% up to $180,000.
Anything we sacrifice into super from our pay goes in pre-tax. Entry tax of 15% is charged on the contribution, much less than the marginal tax rate if the pay is taken in cash.
Become goal oriented
Saving enough to fund your retirement is a very big goal. The easiest way to save a large sum is by small, regular instalments over a long time. A small amount deducted from your pay each week will cause little pain but will make a massive difference in a few years time.
This year a new rule will allow anyone to make super contributions and claim a tax deduction for them. So you could make a large catch-up contribution near the end of the financial year for example. But the least painful way to contribute is by salary sacrifice every payday.
Understand the rules
At this point, there are limits to the salary sacrifice amounts the Tax Office will allow. Total contributions are capped at $25,000 per person this year. This must include the mandatory 9.5% super contribution by employers.
It’s pretty easy to work out… Calculate 9.5% of your pay, deduct that from $25,000, then divide the remainder by the number of pay periods per year. The result is the amount you could sacrifice to maximise your opportunity.
However, money sacrificed into super is not accessible for other purposes. In most cases it is tied up until at least age 60 and perhaps 65. So whether or not it is the right approach for you depends on your complete financial picture. And that’s where we come in.
Financial Planning is not just for Over 55s. Start young. Contact MoneyLink for strategic retirement advice.
Are you keen to talk to a financial planner about the benefits of salary sacrifice and being Super Smart? Contact us today.
MoneyLink Financial Planning Pty Ltd is an Australian Financial Services Licence Holder. No:.247360
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