The power of $20 with salary sacrifice
17 June 2021
If you chat to us about building your super we will always talk about putting some extra money in when you can, if you can.
A tax effective way of doing this is using salary sacrifice. This is where you ask your payroll team to deduct some extra money each pay run from your salary before tax and contribute it to your super fund. BUSSQ has designed a form that you can use to help you do just that.
What are the advantages of salary sacrifice?
It reduces your overall taxable income and helps grow your super at the same time.
How does salary sacrifice work and how can $20 a week, the cost of just 2 takeaway lunches, turn into about $71,600 over the long term?
Salary sacrificing $20 per week over a 30 year period is about $31,000, but with the magic of compound interest it will turn into about $71,600 at retirement*. Though $71,600 might not necessarily sound like a lot it would be on top of your super balance and it could go towards the caravan or motorhome to meet your retirement dreams.
If you didn’t take the money as a lump sum you could convert the balance into an income in retirement with a BUSSQ Income account. The extra income could allow you to enjoy some of life’s comforts in retirement such as keeping warm in winter and buying the grandkids the really cool presents for birthdays and Christmas.
Retirement can be tough and that extra little bit can be the world.
We can help you work out if salary sacrifice is right for you. As a BUSSQ member you you have access to personal financial advice on contributions at no extra cost^. Call us on 1800 692 877.
Salary sacrifice details*
At 35 years old Kate is earning $75,000 a year and has a super balance of $85,000.
After receiving some advice Kate decides to salary sacrifice $20 per week into her super and she plans to continue doing this for the next 30 years until she finishes work.
Salary sacrificing $20 per week will reduce Kate’s take home pay by $681 per year.
When Kate finishes work at age 65 she will have an additional $71,604 in super because she decided to salary sacrifice.
Things to consider:
- You can make $27,500 (from 1 July 2021) in contributions to your super per financial year before the marginal tax rate applies. This includes the amount contributed by your employer as the mandated super guarantee contribution.
How salary sacrificing into super reduced Kate’s taxable income and take home pay:
|With salary sacrifice
|Without salary sacrifice
|Salary sacrifice contribution||$1,040||-|
|Total taxable income||$73,960||$75,000|
|Total tax payable||$15,983||$16,342|
|Take home pay||$57,977||$58,658|
contribution (SG at 10%)
|Salary sacrifice contribution
($20 per week)
|Contributions tax at 15%||$1,281||$1,125|
|Total super contribution||$7,259||$6,375|
* This example is provided for illustrative and educational purposes only. These figures were calculated using financial modelling software on June 2 2021. The calculation assumes the following: salary sacrifice amount of $20 per week for a time period of 30 years; income increases by 2.5% p.a; Superannuation Guarantee (SG) rate increases to 10.5% in 2022, 11% in 2023, 11.5% in 2024 and 12% in 2025; income tax continues to be calculated at the current marginal tax rate including the Medicare levy; inflation at a rate of 2.5% p.a; the amount in superannuation is invested in a growth option earning 6.74% p.a before fees and taxes until age 65. The information may be affected by inaccurate assumptions, known or unknown risks and uncertainties, and should not be used as a guide to future performance of any investment. Investment returns can be positive or negative and this does not guarantee a future outcome. These figures are provided only to demonstrate the principle of compounding. They are not intended to represent projected returns in a BUSSQ superannuation account. ^Personal advice is limited to BUSSQ products and is advice on insurance, investment choice, contributions and retirement. The cost of this advice is included in the BUSSQ Trustee related costs and this advice is provided by Link Advice Pty Ltd (ABN 36 105 811 836 AFSL 258145).
This information is general advice only and does not take into account or consider your personal objectives, financial situation or needs. Before acting, you should review the relevant Product Disclosure Statement to ensure you have all the information about the BUSSQ product and how it works and consider the appropriateness of the information to your needs or seek independent advice from a properly qualified professional. Prepared by BUSS (Queensland) Pty Ltd (ABN 15 065 081 281, AFSL 237860) as Trustee for BUSSQ (BUSSQ Fund, ABN 85 571 332 201).