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How to make super contributions a habit in the time of COVID
If you, like many Australians, haven’t given much thought to your superannuation balance before, 2021 may be the right time to start.
If the last year has taught us anything, it’s that we cannot predict the future. The Covid-19 pandemic was responsible for heightened uncertainty in global share markets, and your super balance may have felt the impacts.
Over the March 2020 quarter, Australian Bureau of Statistics figures show total superannuation financial assets fell by $258.4 billion. By the end of June, recovery in the form of valuation gains in share markets was prevalent across this sector, with an increase of $130.2 billion in financial assets.
On top of this, tens of thousands of Australians were given access to withdraw funds from their super due to economic challenges from Covid-19. Thanks to the Early Release Super Scheme, over $3.8 billion had been withdrawn between April and December 2020.
All of these factors may have resulted in your superannuation balance dropping or dipping lower than you’d like for your retirement balance target. This is where superannuation contributions come in.
Let’s explore how you can make superannuation contributions a habit in 2021, and better set yourself up for a comfortable retirement.
Salary sacrificing
The easiest way to make growing your super balance a habit is to set it and forget it with salary sacrificing, also known as concessional contributions. This is where your employer takes part of your pre-tax salary, as determined by you, and pays it directly into your superannuation account.
Simply look at your income and how much you may be able to afford to put away each payday and reach out to your employer/accounts department. Salary sacrificing isn’t considered part of your super guarantee contributions, so even if you sacrifice 5 per cent more into your super, your employer will still need to pay the 9.5 per cent guarantee amount.
Salary sacrificing may have tax benefits as well. The payments are taxed at a rate of 15 per cent, which for some may be lower than their marginal tax rate. The maximum you can contribute per financial year is $25,000.
After-tax contributions
You may also want to consider making personal contributions into your super account, also known as non-concessional contributions. Unlike salary sacrificing, this option involves contributing funds from your income after tax. You can make up to $100,000 in after-tax contributions each financial year.
You may want to make contributions on an ongoing basis, similar to salary sacrificing, or as a one-off deposit. Again, if you’re considering ongoing contributions, you’ll want to take stock of your income and budget a certain amount that you are comfortable putting into your account.
How much can I afford to contribute?
You’d be surprised just how much spare change you may have if you consider cutting out some of life’s little luxuries.
RateCity crunched the numbers on some of our favourite luxuries, and just how much more you could be adding to your superannuation by putting one or more of these into your account instead.
Cost of everyday luxuries
| ITEM | COST | FREQUENCY | COST PER WEEK | COST PER YEAR |
| Coffee | $3.50 | x7 per week | $24.50 | $1,274 |
| Wine | $20 | x1 per week | $20.00 | $1,040 |
| Six pack of beer | $20 | x1 per week | $20.00 | $1,040 |
| Public transport | $4 | x1 trip per week | $4.00 | $208 |
| Uber/Taxi | $20 | x1 trip per week | $20.00 | $1,040 |
| Bottled water | $3 | x3 per week | $9.00 | $468 |
| Breakfast out | $20 | x1 per week | $20.00 | $1,040 |
| Buying lunch | $10 | x3 per week | $30.00 | $1,560 |
| Block of chocolate | $5 | x1 per week | $5 | $260 |
| Subscription TV | $99 | x1 per month | $1,188 | |
| Gym Membership | $20 | 1x per week | $20 | $1,040 |
No one is recommending anyone skip their morning coffee. But it’s worth keeping in mind that if you’re the type of person who buys multiple cups a day, skipping even half of those coffees and putting the savings into your super could allow you to contribute $637 that you never knew you had.
In the end, the decision to make additional super contributions outside of the 9.5 per cent guarantee is up to your personal situation and budget. It may be worth reaching out to an accountant for more personal financial advice.
Disclaimer
This article is over two years old, last updated on March 19, 2021. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent superannuation articles.
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