The difference extra contributions can make
Contributing extra to your super does not have to be a big financial obligation.
On 15 September 2016, the Government announced that the $500,000 lifetime post-tax contribution cap that was proposed in the May 2016 Federal Budget will not proceed. The annual post-tax contribution cap will continue, however the cap will reduce from the existing amount of $180,000 per year to $100,000 per year from 1 July 2017. Individuals under age 65 will continue to be able to bring forward three years’ worth of post-tax contributions ($300,000 over three years for those under age 65). Please note that these further proposals have not yet been legislated. We will update this information as the proposed reforms pass through the parliamentary process.
By making small, frequent contributions to you super over the long-term you can make a real difference to your retirement savings. And the earlier you start, the better off you will be.
The impact of voluntary contributions
||Brad's story in the table below shows the difference voluntary contributions of just $50 a week could make. This is the cost of a basic meal out with your spouse or buying your lunch each day at work – but it could give you up to almost $7,500 more income in every year of your retirement*.
33-year-old Brad is single and has already accumulated $45,000 in super. He plans to retire at age 60 and expects his retirement income will last until he is 87. Brad's annual salary is $65,000.
||Annual savings until retirement
at age 60
|Estimated annual retirement income in today's dollars
|9.5% SG Contribution only
|9.5% SG Contribution + $100 post-tax contributions per fortnight
|9.5% SG contribution + salary sacrifice to reduce take-home pay by $100 per fortnight
Future performance is not guaranteed. These figures are projections and are not a guarantee of return.
By making extra contributions to his super, Brad could boost his annual retirement income by $7,775-10,000 pa - a difference of up to $150 a week.
You might not be able to afford to contribute $100 per fortnight but even $20, $30 or $40 can make a significant difference. Find out how extra contributions can boost your super with the Telstra Super Simulator.
The early bird catches the worm
Consider three people aged 25, 35 and 45. Each person decided to make post-tax contributions of $20 per week to their super. Take a look at how much of a boost an early contributor could achieve on their final retirement balance.
|Age contributions commenced
|Weekly contribution amount
|Total amount contributed to age 65
|Estimated boost to retirement savings
Future performance is not guaranteed.
Assumptions: Based on weekly unchanging contributions of $20 post-tax to age 65, investment return of 7%, retirement age of 65. Not discounted to today’s dollars. No fees, taxes or withdrawals have been taken into account. Assumes zero balance at commencement.
Starting early with your additional contributions is even more beneficial given that contribution limits apply to pre-tax and post-tax contributions.
Contribution limits restrict the amount by which people can boost their super with larger contributions closer to retirement.
There are tax benefits too
For most people, contributing to super is a tax-effective investment, with returns taxed at a maximum of 15% (this tax is 30% for members with eligible income over $300,000). Compare this to paying tax at your marginal tax rate (plus Medicare levy) on investments outside of super.
You can choose to contribute on a pre-tax basis, which depending on your income tax rate and personal circumstances could also provide significant tax advantages. Alternatively, if you earn under $50,454 pa and contribute post-tax contributions to your super, you may be eligible for a Government co-contribution of up to $500.
Choosing between pre-tax and post-tax contributions can be confusing, so we have prepared some information on pre and post-tax contributions.
Use our Pre-tax vs Post-tax contributions calculator to find out what type of contributions will work for you.
To explore all the options available to you, you may wish consider speaking with an adviser from Telstra Super Financial Planning. To discuss your advice needs, please call us on 1300 033 166.