When you hear the words “salary sacrifice”, it’s easy to feel uneasy or become intimidated. Even though the term doesn’t sound that welcoming, a salary sacrifice can actually be a great way to build up your retirement savings quickly. Let’s take a quick look at what a salary sacrifice is and then we’ll go over 3 good reasons why you may want to consider it.
Understanding a salary sacrifice is actually pretty simple. Money is taken from your salary pre-tax and put into your super. In other words, you are electing to contribute an extra amount of money from your salary into your super. The process is voluntary and no one is required to make a salary sacrifice. Having said that, here are 3 good reasons why you might want to consider one:
Any amount of money you decide to voluntarily withhold from your salary to put into your super is pre-tax, which means that your income may be taxed at a lower rate.
Tax benefits can be short term, medium term and long term. In the short term, your tax bill may be reduced. In the medium term, you’re looking at a max taxation of 15 percent with capital gains taxes usually capped at 10%. For those over 60, if super funds are moved into a pension fund your super portion isn’t taxable.
Since you’re contributing more to your super, you’ll end up with more money at retirement. Even if you can only make a small salary sacrifice, every little bit helps and builds over the years. Speaking with a qualified financial adviser can help you decided if salary sacrifice is right for you. They can also help to know how much you should contribute.
As you can see, there are a few definite benefits to opting for a salary sacrifice, but of course if you have any questions or concerns, speak to a financial advisor to help you determine the best options for your specific situation.