There are a number of ways to grow your superannuation to enhance your retirement lifestyle. After all, who wants a mediocre retirement. You want to be able to do the things you enjoy.
They key to growing your superannuation is to start early. You are never too young to start growing your superannuation without sacrificing your current lifestyle.
In an earlier article we talked about ways to optimise your superannuation. This included additional contributions, consolidation of your super funds, managing your risk and prioritising your superannuation.
In this article we will explore additional contributions in more depth.
Note: There are a lot of rules about contributions with penalties if there are breaches.
Book an appointment with us to see what you are eligible for or what you can do.
Employer Contributions
We all know that when you are employed, your employer makes a contribution into you nominated superannuation fund. Currently the contribution is 10.5% of your grow income. This contribution is the Superannuation Guarantee Contribution (SGC).
To ensure you are growing your superannuation you should ensure that your employer is making this contribution on a quarterly basis at least. Some employers may do it monthly but the law states quarterly is the minimum requirement. Super payment due dates | Australian Taxation Office (ato.gov.au)
Unfortunately, this is where most people stop when it comes to their superannuation. So, let’s set the baseline for what retirement would look like if you do nothing else.
Say hello to my mate Greg from an earlier article. He starts work at 19 years of age, earns $40,000 for the rest of his life, and receives just the basic SGC contributions which make a return of 5% every year.
When Greg retires at age 67, he will have about $593,466 in superannuation.
Sounds ok, doesn’t it?
So, let’s see what we can do for Greg to improve his retirement savings.
Your employer pays your superannuation on your behalf. But you can grow your superannuation by making contributions yourself or with the government’s help. There are three ways to do this:
- Salary Sacrificing
- Personal Contributions
- Government contributions
Salary Sacrifice
This is arrangement between you as an employee and your employer that helps you grow your superannuation. You tell your employer to reduce your wages and make a higher contribution into your superannuation fund.
Let’s see what the outcome is for Greg if he salary sacrifices $50 every fortnight for the rest of his working life.
| Current Situation | Salary Sacrifice | ||
|---|---|---|---|
| Gross Wages | 40,000 | 40,000 | |
| Salary Sacrifice | 0 | 1,300 | |
| Taxable Income | 40,000 | 38,700 | |
| Net Tax inc Medicare | 4,367 | 4,029 | |
| Net Wage | 35,633 | 34,671 | |
| SGC | 4,200 | 4,200 | |
| Salary Sacrifice | 0 | 1,300 | |
| Total Super Contributions | 4,200 | 5,500 |
From the table you can see that Greg’s take home pay drops by only $962 per annum and his super contributions increase by $1,300.
His superannuation at retirement, if his continues this all his working life, is $806,440. A whopping $213,219 extra.
Because the $50 paid in every fortnight comes from his pre-tax earnings, Greg does not really miss the extra in his fortnightly pay.
Personal Contributions
You can also grow your superannuation by making a contribution from your own funds. This is an after-tax contribution or also called a Non-Concessional Contribution.
Let’s see how this works for Greg.
Greg is now 42 and has a win in the lottery. It’s not big but enough to pay off his mortgage and buy a new car. He’s got $50,000 left over and wants to invest it into his superannuation. So, he makes a non-concessional contribution to his chosen superannuation fund. And yes, he’s diligently been making the $50/fn salary sacrifice too.
When he retires his total benefit is now $953,993.
That’s $360,000 more than if he did nothing and nearly $147,553 more than his salary sacrifice retirement benefit.
Government Co-Contribution
The governments wants to assist eligible low or middle-income earners to grow their superannuation. Because Greg is a low-income earner, he is eligible for a government co-contribution if he makes an after-tax contribution into his superannuation fund.
Greg will receive a co-contribution of up to $500 from the government if he makes an after-tax contribution himself. The government will make a co-contribution of 50% of the after-tax contribution. So, to get the maximum co-contribution of $500 you need to make a contribution of $1,000.
Let’s see how this could help Greg.
Greg and his wife are now 48. Their kids have left home so their bills have reduced significantly leaving them with extra money every fortnight. They decide to make an annual after-tax contribution of $1,000 to get the government co-contribution of $500, as they are eligible for it.
Greg’s retirement benefit is now $1,001,785.
That’s an additional $408,564 than if he just received the SGC from his employer.
Conclusion
It is easy to grow your superannuation. You just need to start early and have the right advice.
Salary Sacrifice, personal contributions and where possible the government co-contribution can all help to grow your superannuation. The result is a better retirement lifestyle for you and your family.
Get The Right Advice
Contact Us
At Insight IRS we offer all prospective clients a complimentary initial meeting.
Call 1300 551 267 or Email great.advice@insight-irs.com.au
