Our learning module makes super easy to understand so you have the chance to turn your super money into a small fortune!
Let’s look at Laura for example
Laura is 37, and earns $100,000 before tax, excluding her 9.5% employer superannuation guarantee (SG) contribution. She decides to give up one of her two small takeaway coffees each weekday for 48 weeks of the year, which at $3.50 per coffee gives her $840 after tax per year to invest, or $1,377 before tax per year. She decides to contribute this $1,377 into her super as a pre-tax or concessional contribution. Have a look at the table below to see how this works in more detail.
|Does nothing||Makes concessional super contribution|
|Salary (before tax)||$100,000||$100,000|
|LESS pre-tax (concessional) contribution||$0||$1,377|
|LESS income tax||$26,947||$26,410|
|Employer SG (9.5% of salary)||$9,500||$9,500|
|Pre-tax (concessional) contribution||$0||$1,377|
|LESS 15% pre-tax contribution tax||$1,425||$1,632|
|Super (after tax)||$8,075||$9,245|
As you can see, by giving up one coffee every work day over 48 working weeks (most people have around 4 weeks of holidays per year) at a total cost of $840, Laura has improved her super by $1,170 in the first year and paid less in income tax.
Start small, and as soon as possible
If you start early, the amount you choose to contribute to your super doesn’t have to be large to have a big impact thanks to the power of compound interest. Many of us are familiar with the concept, where you earn interest on your principal investment and then earn interest on that interest as well.
When compound interest is working for you in your super it’s a powerful savings weapon. So the earlier you begin to add more to it, the better.
Consider your circumstances
Whether a concessional contribution arrangement is right for you depends on your individual circumstances. When deciding whether to make additional contributions to your super and how much to contribute, you should consider your personal financial situation. You’ll also need to check that your employer allows additional pre-tax super contributions.
As with all investments, there are risks associated with investing inside super. Before making an extra contribution, you should ensure you understand and are comfortable with the risks associated with your chosen investment option(s).
There are also limits around how much you can contribute from your before-tax salary. Most people can currently contribute up to $30,000 per year, including their employer's 9.5% SG contribution.
Currently there are higher concessional caps for people closer to retirement. People aged 49 and over can contribute $35,000 per year, including their employer's 9.5% SG contribution. Exceeding these caps can result in financial penalties. For more information on caps and penalties, go to the ATO website.
We’re here to help
There are other ways to give your super a boost, such as making after-tax contributions, to ensure you can retire the way that you want. To see how this works compared to pre-tax contributions check out our salary sacrifice calculator.
Or if you need help with strategies around your super and more, talk to your financial adviser. If you don’t have a financial adviser, you can find an adviser in your local area or call us on 131 267 Monday to Friday from 8:30am to 7pm (AEDT).
Please note: It’s important to remember that the Government proposed a number of changes to superannuation in the 2016 Federal Budget. These changes may progress to legislation. See your financial adviser before making any decisions regarding additional super contributions.
The government has made significant changes to several of its plans around super reform.