Let time and compound interest work for you
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.