For some of us, retirement is a long way off and for many, saving for retirement is less than an afterthought. But what if it wasn’t? There is one small thing you can do now that will be of huge benefit to your superannuation fund balance in the future and may be the difference between eating cat food in retirement rather than camembert.
This week, I was very pleased to receive a message from an old friend who had taken on-board some advice I’d given her a few years ago. The advice? To start salary sacrificing a percentage of her wages into her superannuation account.*
What does salary sacrificing your super actually mean? It’s when you nominate a percentage of your pre-tax salary to be paid directly into your superannuation account. Once this money is in your super fund, it is taxed at the rate of 15% which over an Australian worker’s lifetime, is less than the average you will be taxed on your income. This means, well, savings!
To give you some background on my friend, she was (and still is) working on a mine in Western Australia. Four years ago, she had little in the way of accommodation costs as she lived onsite most of the time. She was 27, not looking to buy a house and had just successfully paid off a personal loan (best to get these salary suckers off your back quickly) and a student loan.
Her salary four years ago was just over $60,000, which if you take out living costs including rent, food and bills, makes for a very comfortable amount to live on. She enjoyed many overseas trips and indulged her fetish for quirky t-shirts to the extreme, but also wanted to make some kind of financial contribution to her future. At that time, her superannuation balance was just $12,000, earned via the Australian government policy of contributing 9% (now 9.5%) to superannuation funds of all salaried or wage-earning Australian workers. She made the decision to salary sacrifice a further 8% to her super, so that out of every pre-tax pay, she was putting 17% into her superannuation.
Fast-forward four years and she now has a superannuation balance of almost $55,000. She describes this as “the most money I’ve ever seen linked to my name”.
The news only gets better for my friend on the mine, whose super balance, buoyed by compound interest, time and general upward trend of the stock market will continue to grow.
And that everyone, is what I call a super good news story.
* I am not a qualified financial advisor. This advice was based purely on my opinion and life experience.