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Hey everyone, I thought I would share a very simple and easy way to build your retirement savings here in Australia, and that is salary sacrificing!
Retirement might be far away for many of us, but at the end of the day – it’s still our money.
So have a watch of what’s involved with salary sacrificing into superannuation.
Today’s video is on 1 quick and easy way to maximize your retirement earnings, and that is on salary sacrificing.
What is salary sacrificing?
Salary sacrifice is when you agree to receive less income before tax, in return for your employer to provide you with benefits of similar value.
The amount you “sacrifice” comes out before you are paid, reducing your taxable income and hence an immediate tax benefit.
You can salary sacrifice many things – cars, mortgage repayments, laptops or computers, but for the purposes of this video, we will discuss the most common form of salary sacrifice: And that is salary sacrifice into superannuation
How does it work then?
Well, first, you need to look at your income and expenses, and work out how much of your income you can afford to give up now.
After you’ve worked out how much you can sacrifice, ask your employer to pay this amount out of your pre-tax salary into your super account.
These pre-tax payments are called concessional contributions, and are taxed at 15%, unless you earn more than $250k including the contribution, in which case it is 30%.
This concessional tax rate is the key because it is on a lower marginal tax rate than normal wages. To give you an idea, the average wage in Australia is around $85k and sits at a marginal tax rate of 32.5%.
Therefore, the main benefit is you pay less tax whilst boosting your retirement savings
By way of an example, imagine you earn $80,000 and decide to salary sacrifice $10,000 to super. You would pay $1,500 in tax on that $10,000 salary sacrificed compared to $3,450 in tax you would have to pay normally — a total tax saving of $1,950 that goes to your bottom line.
How much can I salary sacrifice?
The annual limit for before-tax contributions is $25k p.a. This also includes any contributions you already get from your employer.
Oh, and your employer should also continue to make the standard 9.5% compulsory contributions on top of any salary sacrificed amount. The government closed a loophole this year where previously employers included any salary sacrificed amount in their compulsory contributions.
I know many people may think that man, super is so far away, and I can only access it when I am old and grey, so why should I care?
I get that, I do. But you can’t think of it like that. You need to start thinking of it as your money now and you need to find ways to maximize your money. Also think about the numbers.
From the example, a saving of $1,950 on a salary sacrificed amount of $10,000 is an instant 19.5% return which you can then use to compound and grow.
Show me where else can you find those sort of returns just by changing how you are paid. As risk-free as it gets methinks.
I hope you liked this video as it’s all about raising awareness on money matters, especially with something so simple, and it at least motivated you to look into something which you may not have considered before.
So what do you think? Will you consider salary sacrificing? Let me know in the comments below!
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