How to grow your super and achieve your other financial goals
And do it at the same time
Let time and compound interest work for you
According to the Association of Superannuation Funds of Australia (ASFA), a couple will need $640,000 in savings at retirement to enjoy a comfortable lifestyle after work. A single person, meanwhile, will need $545,000.
It sounds daunting, but that’s where the fact retirement is years away works in your favour. Thanks to time and compound interest, growing your super while you work doesn’t have to mean giving up a big slice of your budget.
At its most basic, compound interest means earning interest on interest – for example, if you invest $1,000 and earn $100 in interest, you’ll then begin to earn interest on your new total of $1,100. Simple interest, on the other hand, is always calculated on the principal, or the original $1,000 you invested.
Depending on your circumstances, contributing a little extra through salary sacrifice can help push your super even further.
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For example, take Sam. Sam salary sacrifices just under $167 extra to her super per month. This adds up to a total of $30,000 over 15 years from the ages of 25 to 40. Thanks to the power of compound interest, this contribution becomes $198,590 by the time Sam is 65 based on her expected investment return.
Meanwhile, Anton salary sacrifices just under $167 per month. This adds up to a total of $60,000 over 30 years, from the ages of 35 to 65. Because compound interest had less time to work its magic, this becomes $161,514 when Anton is 65.
While Anton is still able to boost his super, the way compound interest works means that the earlier you start, the better off you may be1.
1About Sam and Anton’s example: The projected outcome makes a number of assumptions, such as that Sam makes monthly contributions of $166.67 for 15 years (from age 25 to 40), and that Anton makes monthly contributions of $166.67 for 30 years (from age 35 to 65). It is also assumed that both Sam and Anton’s contributions are salary sacrificed and do not exceed the concessional cap, and their investments earn a rate of return of 5.8% p.a. paid in arrears. The amount is not a prediction of actual returns, which are likely to vary over time, and actual dollar values are used with no adjustment for the effect of inflation. Differences in returns (which may be positive or negative), and fees will alter the outcome. The example shown may not apply to your own situation, so we recommend that you consider your options carefully and seek financial and tax advice about salary sacrifice. Salary sacrifice arrangements are subject to employer approval.
Use your super now
Though your super is, for the most part, set aside for your time after work, the government has introduced a way for Australians to access part of their super to help pay for a deposit for a home.
With a survey finding 75 of people under 30, and 69 percent of people aged 30 and above believe owning a property is still the great Australian dream, the Federal Government introduced the First Home Super Saver Scheme (FHSS) in 2017 to help more Australians achieve it.
If you are a first home buyer and both the following apply to you, you may be eligible to participate in the FHSS scheme:
- You either live in the premises you’re buying or intend to as soon as practicable; and
- You intend to live in the property for at least six months within the first 12 months you own it, after it’s practicable to move in (if you enter into a contract to build a home, the timeframe may be different)
Under the FHSS scheme, you can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years. You’ll also receive the earnings that relate to those contributions.
There are a number of important things to know about the FHSS – learn more.
Learn if salary sacrificing is tax-effective for you
Depending on your circumstances, salary sacrificing could be a tax-effective way for you to either save for your retirement or pay for various expenses – or both.
The Australian Taxation Office (ATO) defines salary sacrifice – also known as salary packaging – as “an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages. This is in return for the employer providing them with benefits of a similar value.”
The types of benefits most often provided in salary sacrifice arrangements by employers can include things like cars, a portable electronic device, and super contributions.
Generally, entering into a salary sacrifice arrangement means you only pay income tax on your reduced salary. Depending on your income tax bracket, this could be tax-effective.
The Qantas Group offers salary sacrificing for a number of things. Eligible employees have the option to salary sacrifice to their super, and to salary sacrifice portable electronic devices, a car, or pay for childcare at a Joey Club.
Watch this short video to learn more about salary sacrificing and how to boost your super:
You can learn more about salary sacrificing and whether it might be right for you via ASIC’s MoneySmart.
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Make a contribution
You can review your contributions for the current financial year and grow your super by logging into your account.
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Get advice
If you want to learn more or need help with making a decision about your super, you can get simple advice over the phone or face to face. It’s included as a part of your membership so there’s no extra cost.