Salary sacrificing into super is effectively a long-term wealth strategy that may help to grow your retirement savings over time.
It is really about sacrificing some of your income now, to save for your retirement and means you’re not just relying on your employer’s regular super contribution of 9.5 percent to save for your future. As you’ll essentially be taking home less money, you may want to consider calculating how much of your income you can afford to give up.
There are a number of benefits to salary sacrificing into super. These include:
the amount you salary sacrifice into super is generally taxed at 15 per cent, which for most people will be less than the tax you may pay on that income personally if it was paid to you as salary. This also means you will reduce your taxable income as you’ll essentially be taking home less money
what you earn off your investments inside super is taxed at 15 percent, which may be less than the tax you may pay on your investment earnings outside super
you have additional money being saved towards your retirement, with these regular savings happening automatically for you.
There is also the added power of compounding returns. As you start adding more money to your super account, you may earn returns on that extra amount over time. So, it’s that little bit of returns you earn in the early stages that can make a difference in the end.
It is important to note if you’re thinking about salary sacrificing into super:
the tax benefit is only available if you contribute no more than $25,000 per year from your pre-tax income. This includes the regular super guarantee contributions made by your employer; and
the extra money you contribute into super is generally not accessible until you retire.