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I'm 40 or over - should I salary sacrifice?

Salary sacrificing can be an effective way to boost your super balance while also reducing your taxable income.

Salary sacrificing is an arrangement that allows you to add some of your salary or wages directly into your super before you’re paid, reducing your taxable income and providing an immediate tax benefit.

Salary sacrifice can be an effective strategy to grow your super balance over the course of your career, even those 40 years or older can still see a boost in their balance.

Any salary sacrifice that you request your employer make on your behalf is on top of their compulsory super contribution and can be changed or stopped at any time.

Benefits of salary sacrifice

Salary sacrificing can deliver three main benefits:

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Pay a reduced tax rate

When you salary sacrifice into your super it’s taxed at a rate of 15%, or 30% if you earn $250,000 a year or more, whereas your take-home pay can be taxed anywhere up to 47%.

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Reduce your taxable income

In addition to paying a lower rate of tax on your salary scarified amounts, the more pre-tax salary you choose to put into your super, the lower your taxable income will be.

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Long-term super growth

Any contributions into your super account can benefit from the power of investment returns and compound interest over your career, allowing additional returns to be generated.

It’s not too late to start salary sacrificing

Although super is considered to be a long-term investment, we know the reality is that many people don’t really start to think about their super until they get closer to retirement.

Thankfully, salary sacrificing can still be hugely beneficial to those mid-way through, or even near the end of their careers. The below example highlights the impact salary sacrificing can make by comparing two people 50 years of age, on the same salary and with the same super balance when one salary sacrifices and the other doesn’t.

How much to salary sacrifice

When deciding how much to salary sacrifice there are a number of considerations you may want to take into account. Two of the main ones are:

  • Avoid leaving yourself short – once money has been contributed to your super it typically cannot be accessed until retirement age.
  • Don’t contribute too much – to avoid paying additional taxes ensure that the combined amount of your salary sacrifice and employer contributions don’t go over $27,500 in a single financial year.2

Thankfully, super is a long-term investment, and coupled with the power of compound interest, even a small but consistent salary sacrifice arrangement can have a significant impact on your balance when you retire.

The Mercer Retirement Income Simulator can help you visualise the impact a salary sacrifice arrangement can have on your super balance over the long-term. It will show you what your retirement income could look like, how long it might last and how adding a little extra can have a significant impact over the long term.

  • Example: James and Mark take different approaches

    James and Mark are both 50 years old, each with a $250,000 super balance, and both earn $90,000 per year.

    Both of their children have recently moved out of home. They note that as they’re no longer financially supporting their children they have more money freed up in their budget each fortnight.

    Mark, who is conscious that he’s not paid much attention to his super over his working life, tells his employer that he would like to them to salary sacrifice $300 into his super each fortnight on his behalf.

    As a result, if Mark continues this arrangement, when he reaches age 65 and is ready to retire his balance will be approximately $663,362.

    James, unlike Mark, opted to spend the additional money each fortnight rather than salary sacrifice it into his super.

    As a result, by the time James reaches age 65 and is ready to retire, his balance will be approximately $542,342 $121,020 less than Mark.1

Looking to make up for lost time?

Make an additional contribution to your super by 22 June 2022.

Getting started

Before salary sacrificing into super you may want to seek financial advice.

As part of your membership, our Helpline Advice team can provide financial advice about your super fund at no additional cost. You can make an appointment with this team by calling our Helpline on 1800 682 525 between 8am-7pm (AEST/AEDT), Monday-Friday.

Once you've determined how much you'd like to salary sacrifice, simply complete our salary sacrifice form and return it to your employer.

Disclaimer: 1. This example was prepared using Mercer’s Retirement Income Simulator for a 50 year old male with a $250,000 super balance, a $90,000 per year salary and an intended retirement age of 65. This calculator uses default assumptions about future investment returns and inflation, which are considered reasonable at the current date based on long-term economic modelling (by Mercer Investment Consulting). The results provided are in today's dollar value which have been calculated by deflating the projected dollar amounts based on the assumed rate of wage inflation as described on the Assumptions panel within the Mercer Retirement Income Simulator.

2. From 1 July 2021 the concessional contribution cap is $27,500. In some circumstances members may be able to contribute more than $27,500 in a single financial year by utilising the carry-forward rule. For further information on the contribution caps, as well as the carry-forward rule, see our contribution caps page.

This document has been prepared on behalf of Mercer Superannuation (Australia) Limited (‘Mercer Super’), ABN 79 004 717 533, Australian Financial Services Licence #235906, the trustee of the Mercer Super Trust ABN 19 905 422 981. Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances. Please consider the Product Disclosure Statement, Product Guide, Insurance Guide, and Financial Services Guide before making a decision about the product, or seek professional advice from a licensed, or appropriately authorised financial adviser if you are unsure of what action to take. 'MERCER' is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2022 Mercer LLC. All rights reserved.