Superannuation is an investment for the long haul, designed to ensure Australians remain financially independent in retirement.  However the tax advantage associated with super now make it an even more attractive way of saving for retirement.

One strategy you should consider is salary sacrifice. That is contributing a portion of your pre-tax salary into super, in addition to the mandatory 9% super guarantee paid by your employer.  The key benefit of salary sacrificing is that it generally allows you to pay less tax on you salary.  There is a limit to the amount you can contribute however, salary sacrifice still remains an appealing tax-efficient strategy, as Stuarts story demonstrates.

Stuarts story

Stuart, 51, is an engineer who earns $90,000 a year.  Having paid off his home he is now keen to build up his super for retirement and wants to work out the best way to contribute an extra $40,000 to his fund. He considers two options :

1  If Stuart chose a salary sacrifice arrangement, the $40,000 contribution would be deducted from his $90,000 salary before tax.  The contribution would be subject to the governments 15% contribution tax, bringing his total super contribution down by $6,000, to $34,000.  However, his gross income for the financial year would be reduced to $50,000, meaning Stuart would be liable for just $9,600 in income tax (including the Medicare levy), bringing his net income for the year to $40,400.

Under this option his total benefit for the year would be $74,400.

2  If Stuart chose to make a personal contribution to his super, the $40,000 would be deducted from his income after tax.  With a salary of $90,000, Stuart would be liable for $23,000 in income tax (including the Medicare levy), bringing his net income for the year to $67,000.  His personal $40,000 superannuation contribution would not attract the 15% contribution tax, but once deducted.  Stuarts net income for the year would fall to just $27,000.

Under this option his total benefit for the year would be $67,000.