Looking for an easy way to supercharge your super? Here’s one way: increasing your super contributions by just 1% of your annual income can allow you to enjoy an earlier and more comfortable retirement without having to make drastic changes to your current lifestyle.
1% sounds like a small amount of money, and it is if you only look at one or two years. But over decades, and with consistent contributions, the power of compounding wealth grows it into a significant nest egg for your retirement.
To see just how dramatic this effect can be in practical terms, let’s walk through how contributing 1% more can supercharge your super and reduce your tax.
Growing Your Super
You already make contributions to your super, whether it’s the super guarantee (SG) from your employer, or voluntary contributions from your business income.
Now, take your annual income and calculate what 1% of it is. It’s a really small amount relative to what you earn, right? That’s how much we recommend adding to your super contributions.
It won’t affect your lifestyle and you don’t have to make any big cuts to your expenses. For most Australians, the sacrifice amounts to less than $70 per month. However, that extra 1% contribution can build up into thousands of dollars in retirement savings.
Let’s see how this might play out in a real-life scenario.
John has just turned 35 and earns $113,000 before tax and after salary sacrifice (his employer’s SG). John decides to redirect 1% of his pay ($1,130 per year) to his super as part of his concessional contributions.
Minus the 15% contributions tax, $960.50 gets added to John’s super. Assuming a very conservative return of 3% per annum, if John contributes this extra amount every year, it will accumulate to about $45,000 in 30 years, when he’ll be approaching retirement.
Keep in mind that this is the lower range of what’s possible. Even conservative investment portfolios typically deliver between 4-5% in returns, and growth-focused portfolios can reach 7% or more. So John could potentially build more wealth with a modest 1% increase in super contributions.
The impact on John’s retirement is twofold:
- He will have more savings when he retires, ensuring a less stressful retirement.
- He will have the option to retire earlier if he wants to, since his retirement savings can last him longer.
Tip: You don’t have to limit yourself to 1%. If you can contribute more, with minimal to modest changes to your lifestyle, go ahead and do it. You can also start at 1% and bump it to 2% or 3% as your income grows. At PCR Accounting & Advisory, we can help with lifestyle planning so that you’re able to contribute more to your super while still enjoying your life.
Contributing 1% More to Your Super Reduces Tax
In addition to growing your super, additional voluntary super contributions can reduce your tax bill. This is because of the difference between income tax and contributions tax.
If you earn an income above 45,001, you can make significant tax savings by increasing your before-tax or concessional superannuation contributions. These contributions are taxed at a lower rate of 15%, and they reduce your taxable income.
Instead of these contributions getting taxed at your marginal rate (currently 30%, 37%, or 45%, depending on your income bracket), they get taxed at 15%, and you save the difference.
Let’s get back to John to see how this works.
Without the extra 1% salary sacrifice, John’s income tax plus 2% Medicare levy is $26,948. With salary sacrifice, his total tax bill is $26,586. He saves $362 in tax.
When you factor in these savings, John is able to add $960.50 to his super while reducing his annual income by just $768 ($1,130-$362) or $64 a month. Here’s a table showing the breakdown.
| John’s Income | Without Salary Sacrifice | With Salary Sacrifice |
| Gross Salary | $113,000.00 | $113,000.00 |
| Less salary sacrifice to super | $0.00 | $1,130.00 |
| Less tax and Medicare levy | $26,948.00 | $26,586.00 |
| Take home (net) pay | $86,052.00 | $85,284.00 |
| John’s Super | ||
| Employer contribution | $12,995.00 | $12,995.00 |
| Plus salary sacrifice | $0.00 | $1,130.00 |
| Less contributions tax | $1949.25 | $2,118.75 |
| Net super contribution | $11,045.75 | $12,006.25 |
How PCR Can Help You Supercharge Your Super
Ready to supercharge your super? At PCR, we can help you create a superannuation strategy that grows your retirement savings while letting you live the life you want. We provide superannuation planning that’s tailored to your specific situation and life goals.
Contact us at 03 9847 7516 to get expert and personalised advice on growing your super.
Disclaimer: This blog post is for informational purposes only and should not be considered as financial or legal advice. Consult with a qualified professional for personalised guidance based on your specific circumstances.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.
