At 40 years of age, Carol earns $85,000 p.a. and wants to start investing to ensure a comfortable retirement.
Carol’s adviser shows her the potential outcome of each option assuming an investment over a 20 year period.
Salary Sacrifice versus investing outside Super
By investing $5,000 p.a. in her Super, Carol pays a reduced tax rate of 15% instead of her normal marginal rate outside Super of 34.5%.
By investing in her Super, Carol’s after-tax outcome is estimates at $189,733. Compared to only $122,758 if she invested outside of her Super, Carol will be $66,975 better off by salary sacrificing additional Super contributions.
- Marginal tax rate outside super is 34.5% (including Medicare Levy)
- CGT and income tax is taken into account at all times
- CGT discount for 12 month ownership applied (5O% in personal name, 33% in superfund)
- All earnings are reinvested (less tax for income)
- Tax rate inside Super (including on contributions) is 15%
- Returns from the portfolio are 8% p.a. (5% capltal gain, 3% income) both inside and outside super
- 20% of the income from the portfolio is franked.
This example is provided for illustrative purposes only.
Source: OnePath Life LTD dated July 2011