Ahhh, superannuation. I’m sick and tired of talking about it to be honest BUT I feel like if I didn’t finish my super series off by telling you guys why and how to make extra super contributions, then I really wouldn’t be doing my job as a self-appointed personal finance blogger properly. If you’re reading this article and you’re confused as to wtf my super series is, then catch up on some of my related posts now: What Is Super And Why Should You Even Care, Which Super Fund Should You Choose and How To Invest Your Super Ethically.
Right, I want to start this post by asking you a question. Imagine that you’re 25 years old. You make $70,000 per year before tax. To keep things simple, this is going to be your wage for the next forty years (lol sorry about absolutely no wage progression). Initially, you have $0 in your super account but you are dead set on the fact that you want to retire at 65.
Would you rather retire with…
d) I’m too young to be thinking about retirement
Firstly, if anyone chose D then you need to check yourself because you are never too young to start thinking about retirement. The earlier you start preparing for retirement, the more money you will have when you retire and/or the earlier you can actually retire (which is obviously the bloody dream). Secondly, I don’t know why the hell anyone would ever choose to retire with less money, so obviously the correct answer is C!
I didn’t just pull these random numbers from thin air. Nah, I actually did the calculations on the Money Smart Superannuation Calculator. Check it out:
These numbers show how, with an extra pre-tax contribution of just $20 per week, Steph could retire with $56,724 more than Lily. AND, with a pre-tax contribution of $50 per week, Amy could retire with a whopping $141,809 more than Lily.
If that doesn’t make it pretty bloody obvious why you should be thinking about making extra contributions to your super right now, then I don’t know what will.
How To Make Pre-Tax Contributions
There are two ways that you can make extra super contributions: pre-tax contributions (also known as salary sacrificing) and post-tax contributions.
Personally, I make additional pre-tax contributions because the advantage is that this money is than only taxed at 15%, which is a hell of a lot less than the rest of my income is taxed. The Australian government argues that pre-tax contributions are tax-effective if you earn over $37,000, so if this is you then salary sacrificing might be the best option for you. It’s also important to remember that the maximum you can salary sacrifice is $25,000 per financial year.
Making pre-tax contributions is an arrangement between you and your employer. I thought there would be heaps & heaps of paperwork involved but, honestly it took me like ten minutes to start making extra pre-tax super contributions. All I did was email the accounting team at my work because they are responsible for my pay and let them know (in writing) that I wanted to contribute $20 per week pre-tax into my super. They confirmed the change and that was it.
If you’re self employed, you can claim tax deductions on any pre-tax contributions you make to super. Just keep a record of how much you’ve contributed and file a Notice of Intent form before you claim. The form can be found here.
Some Important Things To Remember:
1. Always keep a personal copy of the written request
2. Check your pay slip to confirm the extra contributions are being made
3. The contributions can only be put into place for work that has not yet been completed
4. Your employer still legally needs to contribute the superannuation guarantee (9.5%). The extra contribution is in addition to the guarantee (not instead of)
*Personal story* – After letting the accountant at my work know about the extra contributions I wanted to make, I checked my next pay slip only to realise that no extra contributions had actually been made. I followed back with the accountant and he let me know that he had forgotten to set it up. I then checked the subsequent pay slip and saw that the accountant had set up contributions of $20 per fortnight, when I had specifically requested to contribute $20 per week. Finally, by the third payslip everything was set up correctly and I’m now well on the way to retiring with more moneeeey. Moral of the story: check your damn pay slips.
How To Make Post-Tax Contributions
Making post-tax contributions is an arrangement between you and your super fund. Basically, it’s as easy as paying an online bill. If you know how to make a BPay payment, then you sure as hell know how to make an extra contribution to your super account. Every single super account will have it’s own BPay number so you can use that to transfer some moolah directly into your fund. All you have to do is login to your super account and find those BPay details.
Remember that these contributions are not taxed because they have already been taxed when you received that money from your employer in the first place.
Good News For Low Income Earners
If you earn less than $52,697 per year before tax, and you make post-tax super contributions, then you could be eligible for a government co-contribution. This just means that the government will match your contribution into your super account. The maximum amount that they will contribute is $500, but that’s still a damn good way to get some free money in your super. You don’t even have to do anything to claim it. The ATO will figure out all of the details for you. All you have to do is start make those post-tax contributions right bloody now.
If you’re reading all of this and it’s kinda making you feel worried that you don’t have enough extra cash to contribute, try not to worry about how much you can contribute. For me, it would be pretty hard at the moment to contribute an extra $50 per week to super. My rent is still sky-high, yet my hours at work are still reduced due to COVID. So, I’ve personally chosen to just contribute $20 per week for now. $20 is literally how much it costs to buy brunch, or to buy one damn cocktail, so I figure that it’s definitely within my budget to sacrifice just one of those things once a week. I’m hoping that one day I’ll be able to contribute more, but for now I’m just sticking to a number that I’m comfortable with and you’ve gotta do the same for you.
Just remember, it doesn’t matter how much you can contribute, it’s more about actually making the effort to do it because it’ll all add up in the end.
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The Stingy Bitch
Based in Sydney, Australia.
Created in 2020.
This site and all of it’s contents are provided for entertainment purposes only and do not constitute personal financial advice. All products that are mentioned are general product advice only, not personal product advice. Not all options are presented and my opinions are subject to change. All content and posts have been prepared as a general summary only and is not intended to be financial advice with respect to any particular matter. This post should not be relied on with respect to any particular matter. If you have questions about any aspect of the content or this site or otherwise require personal financial advice, you ought to seek financial advice. The author disclaims liability to any person who relies on this post.
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