My recipe for super savings success

As someone who has saved through super and is now semi-retired, columnist John Wasiliev shares the significant role before-tax super contributions played in helping him achieve financial security.

By John Wasiliev - 3 min read

A little about John

John Wasiliev writes on personal finance specialising in superannuation and self managed super funds, managed funds and trusts.

My wife and I lead active working lives and hope to do so for some years to come. But having saved through superannuation over the years, we have accumulated healthy super balances that give us confidence in our financial futures after work.

We began saving for our retirement back in the 1990s, but it’s never too late to make a difference. I’d like to share some of the ingredients to our success that you can apply to your own financial situation.

Create and seize opportunities

We have made it predictable by taking control of our entitlements to contribute to super whenever we had the opportunity.

When expenses were high, like when we were reducing the mortgage on our home and later paying for renovations and education expenses for our children, our scope to make super contributions was limited.

At other times we were able to contribute more to our super accounts. For example, my wife received an inheritance at one point, which we committed totally to our super.

We found that we were regularly able to make super contributions so long as we properly managed our finances during more challenging times using budgeting strategies and debt control.

Sacrifice salary now for spending later

The principal strategy we used to make contributions to super was salary sacrifice—also known as before-tax super contributions.

Salary sacrifice is a superannuation savings strategy where you deliberately choose not to spend all your employment income and decide instead to contribute directly into your super account. This can be in addition to what your employer contributes, up to a total of $27,500 a year.

It’s a tax-saving strategy that gives you the opportunity to increase your super balance for spending in retirement. The simplest way to implement a salary sacrifice arrangement is to ask your employer to pay an amount from your regular employment income to your super fund as a salary sacrifice contribution.

By salary sacrificing into super, instead of paying tax on your employment income at your personal tax rate, which could be 19 to 45 per cent, you contribute this to your super where it is taxed at 15 per cent. The result is that 85 cents of every dollar you earn is saved in your super fund instead of 55 to 81 cents outside super.

In Australia's income tax system, the more you earn, the higher the tax you pay. This means the more you earn, the bigger the potential benefit of salary sacrificing.


Fast facts

  • Before-tax contribution limit: $27,500 a year
  • Tax on contributions (paid in the super fund): 15 per cent
  • Timeframe for using unused before-tax contribution amounts: 5 years
  • Maximum super balance for using unused contributions: $500,000

Catch up when you can

If you haven’t been able to make the full amount of before-tax contributions allowed every year, it is possible to catch up by contributing unused before-tax contributions from previous years, if your total super balance is under $500,000.

An unused contribution is the difference between the normal before-tax contribution entitlement (currently $27,500 a year) and how much of this is contributed. Say you contributed $12,000 to your super one year, this creates an unused contribution entitlement of $15,500.

Where your employer pays costs to your super account like administration fees and insurance premiums, these are included as before-tax contributions and count towards the $27,500 cap.

Both salary sacrifice amounts and personal deductible contributions are included in your $27,500 concessional contributions limit.

Make the most of investment earnings

Building a super balance as quickly as we could by making before-tax contributions has allowed us to let investment earnings do a lot of the work of building our balances. One of the realities of super is that the larger your savings pool the greater the role investment earnings can play in building your balance. It’s important to have a long-term perspective when it comes to investing your super.

While we started making before-tax contributions early, there’s always time to make a difference to your financial situation using ingredients from my recipe for success.

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The views and opinions expressed in this article are those of the author and do not purport to reflect the views and opinions of Russell Investments.

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