Super Savings | Increase your concessional contributions
You can turn $24,000 of pre-tax dollars into over half a million dollars.
How? Superannuation. When? Starting now.
Increase your concessional contributions now
Superannuation is the most favourable tax environment we have at our disposal and is consequently the best structure to save for our retirement.
Income is taxed at 15 per cent, which is likely well below your personal marginal tax rate. Capital gains tax falls somewhere between 10 and 15 per cent and comes in at zero once you have retired and your fund is in pension phase.
Our employers contribute 9.25% of our total salary to super for us – money we never even have the chance to spend.
You can however increase your concessional contributions and pitch in more than this. In fact, you can contribute up to $25,000 per year as concessional contributions. This basically means sending some of your pre-tax dollars to your super, something that can be directly arranged with your payroll.
Salary sacrificing $200 per month into your superannuation for 10 years, and assuming a return of 8% per annum (compounded monthly), will give you over $34,000 at the end of the 10 year period.
Assuming that you stop contributing after 10 years but continue to have those funds invested for another 35 years until retirement, you will have over $500,000 on top of the amount accumulated from your compulsory super contributions.
These returns aren’t a result of rocket science, rather the power of compound interest.
No other phenomenon will take you from nothing to a lot and all thanks to the invisible power of time.
What does $200 per month mean to you?
Well if you are on the second highest tax bracket, it will only see your monthly take-home pay reduced by about $120. Giving up the second coffee every day or a cheeky mid-week dinner and drinks could easily free up the funds for contributing extra to super today.
Have you considered how you will maintain your lifestyle into retirement?
The reality is millennials have the power and knowledge to change how their retirement looks.
As it stands today, most Australians don’t have enough in super to fund the retirement they had planned many years ago. It is evident millennials will need more than just mandatory super contributions by the time we retire, so we can start planning today.
The three golden rules are:
1. Start now,
2. Make regular contributions and
3. Be patient.
Are you taking advantage of the power of compounding?
Author: Mat Kemp – Wealth Enhancers’ Goals & Values Specialist
Need some help sorting your super? Our Financial Coaches LOVE helping members with their goals and working out how to attach money to them. To chat goals with one of the WE team, book in a time for a Free Strategy Session.
Disclaimer: Information contained within this article is of a general nature. Do not be rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.