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How To Salary Sacrifice Super

Are you doing it all wrong when it comes to paying down your mortgage or saving toward your retirement?

You’ve heard about working smarter than harder, so let’s take a look at some examples of what working smarter might look like.

To salary sacrifice or not to salary sacrifice

Salary sacrifice is asking your employer to pay all or some of your wage to your superannuation fund instead of your pocket.


John’s pre-tax wage is $2,000 per week and therefore he’s taking home $1,451.

John could ask his employer to now pay $1,800 per week to him and $200 per week to his superannuation fund.

As a result, John is now taking home $1,329 and his superannuation is clearing $170 after tax. Together they have cleared $1,499 instead of the original $1,451.

That’s a positive difference of $48 per week in John’s net worth. If you annualized that figure, it would come to $2,496. If John repeated this over a 30 years career he could potentially save $74,880 on tax!

salary sacrifice

Paying off the mortgage

John has reached 50 and would like to knock as much off his $500,000 mortgage before he retires at 65.

If John is going to do it the hard way, it will require payments of $912 per week over the next 15 years, leaving him with $539 per week to live with.

Alternatively, John could have his mortgage on interest only which would cost him $481. He could then salary sacrifice $28,500 which would see net contributions of $24,225 more per year. Over 13 years, it would accumulate to $515.269.35*: enough to pay off his mortgage and keep some change.

In the meantime, his take home would have been $1,113 per week, which after interest payments would have left him with $632 per week to live with or $93 (17.25%) more than the way he was previously tackling it.

What’s the draw back?

The big draw back is that any money salary sacrificed is locked in superannuation until preservation age is reached.
Unlike additional contributions in a mortgage or savings in the bank, it can’t be accessed if in need. It is also susceptible to changes to the superannuation regime, which could see the age at which you can access your super pushed back and/or the ability to withdraw lump sums amended.

Interested to hear more?

Speak to an accountant or financial adviser to work out whether you should salary sacrifice, and if so how much.
* assuming a 7.1% average annual return in superannuation, which is the average return over the last 22 years.

This article contains general investment advice only (under AFSL 358840).

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