Can a few extra dollars really make a difference?

Saving for retirement shouldn’t mean going without now so you can have more to spend later. But it’s also important to get the balance right between enjoying quality of life while you’re still earning and in the future when you’re not. Putting even a little extra into super can help you meet your savings goal for a comfortable life in retirement.

So it’s well worth weighing up whether $4 for one more take-away coffee each week is worth it compared with the extra $20 you could be putting into super each month. That’s $240 a year and around $10,000 during your working life. And with the magic of compounding that $4 a week could see you a lot better off by the time you retire.

Saving a little into super instead of a regular savings account has another silver lining. Depending on how much you earn and the highest rate of tax you’re paying (your marginal tax rate) you could save on tax for every extra dollar you put into super.   

Helping yourself with extra super payments can also see you get help from the Government. If you’re on a low income, you’ve got two ways to make payments into super and have the Government put more money into your super fund.

• Low Income Super Tax Offset (LISTO): this handy acronym means that the Government will pay a tax offset straight into your super account if your adjusted taxable income for a year is $37,000 or less. The LISTO is worked out as 15% of the concessional contributions (including before-tax contributions such as SG and salary sacrifice) you or your employer pays into your super fund, up to $500. It all happens automatically when your super fund reports the contributions they received on your behalf to the ATO as long as your super fund has your Tax File Number. 
  
  
• If eligible, your LISTO payment from the Government can be as much as $500 or as little as $10 depending on your adjusted taxable income in a financial year and how much extra before-tax contributions you or your employer have paid into your super in the same period.
  
  
• Government co-contributions: if you are a low to middle income earner that meets certain requirements and make extra payments into your super fund the Government will make a payment of up to $500 towards your super in a single year. Just like LISTO you’ll need to be earning less than a certain amount to be eligible and it all happens automatically when you lodge your tax return with the ATO. But to get the Government co-contribution you’ll need to make your extra super payment as an after-tax (or non-concessional) contribution.

By saving into super instead of a regular savings account, you have the freedom to choose how your money is invested. Particularly when interest rates on regular deposits and even term deposits in the bank are low, investments can offer you the potential to earn more from your savings, depending on the type of investments you pick.

We’ll be exploring this all in more detail in another topic, how do you choose where to invest your super? This is where you can get to grips with some investing basics and find out more about what’s involved when you’re choosing super investments.

If you stop earning for a while, super guarantee contributions from your employer are on pause too. You might take time off to travel or study, or care for kids or other family members. But this is a time when even a small break in you super contributions can have a big impact later on. This is why the Government offer to chip in and help out with your retirement savings when your paid income is lower or non-existent and you still manage to make extra payments into super.  

If you’re one half of a married or de facto couple and taking time off from paid work, there’s another way to make sure your super doesn’t suffer a setback. Your partner can make some additional contributions for you to keep your balance growing and as a way for you to benefit from extra help from the government. And if you’re the one helping out your spouse with their super savings, it can put money back in your pocket too. Making a spouse contribution could mean you’re eligible for a tax offset of up to $540 less on your tax bill for the year.