THE continual movement of the goal posts may put you off contributing to super, but the fact remains that superannuation remains a major tool for anybody trying to build wealth.
One of the best strategies is salary sacrifice whereby a pre-tax sum is contributed to super instead of being taken in hand.
Suppose a person is 50, earns $90,000 a year and has a $300,000 home loan which they would like to have paid off in fifteen years - this would require repayments of $2696 a month. If they received a pay rise of $12,000 a year, and took it in cash, they would have $7380 after losing $4620 in tax.
If they opted to salary sacrifice it to super instead, the only tax deducted would be the 15 per cent contributions tax, so they would have $10,200 working for them - an extra $2820 a year.
The strategy of making extra contributions to super would give them $179,000 after 11 years if their fund earned 8%. Remember, there is now no limit to how much you can accumulate in super, and withdrawals are tax free once you reach age 60.
Let's compare the two strategies. Taking the pay rise in cash and paying it off their mortgage would have the loan paid off in 11 years. If they left the payments unchanged and salary sacrificed the pay rise to super, the loan balance would be $113,000 at the end of year 11 but it would be more than matched by the extra $179,000 they had accumulated in super. Using the salary sacrifice strategy, and leaving the loan repayments unchanged, is worth an extra $66,000 to them.
Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is email@example.com