John is 38 and earns $70,000 pa and his tax rate is 31.5%. He anticipates that over his working life his
income will increase incrementally with inflation but nothing astonishing. He wants to put away an extra
$100 a week towards his long term wealth, but he’s not sure whether the tax advantages to be gained from
investing in super are worth tying his money up. His other option is to invest outside super. He knows
that small, consistent savings always work in the long term but is just unsure of the structure to use.
John has heard about salary sacrifice, a strategy where you ask your employer to take extra money out of
your pre-tax salary and contribute it to super. As well as boosting your super, this strategy also reduces your
taxable income, so you pay less income tax.
John decides to compare how much he could save by salary sacrificing $100 per week into super with
how much he could save by investing the same amount outside super. For the purposes of this example,
we’ve assumed that both investments would provide a conservative return of 7% per annum (4% income
return and 3% capital growth)
After 20 years John’s savings could be:
Inside super $108,123
Outside super $78,369.
That’s an extra $29,754 in wealth for John just through the structure being tax efficient.
Here’s how it works:
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