The great gain in sacrificing your salary

Giving up some of your salary now can make or break a comfortable retirement, writes Sally Patten.

A couple of weeks ago I talked about super and why I like it so much. There are tax breaks galore – although you do have to put up with the fact that governments view super as a bit of a cash cow and are always thinking about changing the rules.

You also need to bear in mind that you won't be able to access your money until you are at least in your late 50s. Anyone born after July 1, 1964 won't be able to withdraw their super savings until they turn 60.

But, given the tax concessions on offer, it makes sense for Australians to put more money into super if they can afford to.

I learnt that when I could, the best thing to do was to salary sacrifice into super.

Lyn Long, retiree

Individuals under the age of 50 can inject up to $30,000 a year from their salary into super and, if they earn less than $300,000, they will only pay 15 per cent tax on the portion of their pay contributed to superannuation – which is considerably lower than most people's marginal tax rate. Individuals earning greater than $300,000 pay 30 per cent tax on their superannuation contributions.

In other words, individuals can sacrifice some of their salary into super, rather than take it home and buy a pair of earrings or such.

Anyone who turns 50 or over during the tax year can inject up to $35,000 into super and pay the relevant concessional contributions tax referred to above on the amount they contribute.

The figures of $30,000 and $35,000 include the 9.5 per cent super guarantee, or the portion of our salaries that we must, by law, put into super.

Lyn Long, whom we met last week as a self-confessed lover of shoes, handbags and clothes, might be a spender by nature, but she has learnt to save.

In 1992 Long found herself with almost no retirement savings after the company her husband worked for went broke, owing him weeks of holiday and long-service pay, as well as super (which became a national compulsory scheme in 1992). They had to start all over again.

"We had to keep building up from there. My husband took whatever jobs he could. It was very difficult," remembers Long, a retiree in her mid-60s.

Long worked for as long as she could and says that the best thing she did, on the advice of a financial planner, was to make voluntary contributions into super.

"I learnt that when I could, the best thing to do was to salary sacrifice into super. I salary sacrificed as much as I could manage," says Long.

The former teacher set herself a goal for the amount of money she wanted to have in super. She retired last year and despite the fact that sharemarkets plummeted during the global financial crisis, Long only missed her target by $2000.

In super terms, that is super going.


'Super's a real safeguard'

Like many Australians in the 1980s, Liz Liston (pictured) had her reservations about superannuation but she also had the good fortune of having a sage at home.

"I was very suspicious about super but my husband Des was insistent I was going to live till I was 95 and that I should contribute as much as I could." So she did.

For almost 30 years the primary school teacher contributed the maximum allowable into her Catholic education super fund. And now the "financially illiterate" Liston is, she says, enjoying a "super" retirement.

"Super's a real safeguard," says Liston, 67. "There were times when I wish I could have got out of it but I'm glad I didn't because now I've got it and it's fabulous."

It was something of a bold move in the 80s to prioritise super. Keating's compulsory superannuation guarantee was a decade away. Liston and her husband had six children to raise and she had only just returned to work.

But Liston says her late husband was always astute. He worked at various jobs over the years – firstly as a stock and station agent in Victoria's Gippsland region, then with Liz as a burger shop operator in 70s suburban Melbourne, then as a manager of restaurants at major shopping centres and, finally, as a pewter artisan working from home.

He contributed to my super because he was determined I was going to live a long time.

Liz Liston, retiree

"Des was always a worker," says Liston. "And when he found out he was ill, he contributed to my super because he was determined I was going to live a long time, like my mother."

Today, two years after retiring and four years after her husband’s death, Liston's life is free of financial stress.

"Retirement's very enjoyable. I've got four grandchildren and I volunteer with Very Special Kids," says Liston, who also works as a pastoral associate at St Peter's church in East Bentleigh, Melbourne.

"It's all good."

Case study by Natasha Hughes



October 2015