Superannuation Requirement BBettina’s life expectancy is 65 yearsBy the time Matthew reaches his preservation age she will be 58 years. Therefore their income after retirement will be distributed in 7 years. Pre retirement income for Matthew is 742,247.36Pre retirement income for Bettina is 742,247.36Therefore their combined just before retirement culminates to 1484494.72If this combined pre retirement income is invested, it is anticipated to earn a 7.11 % nominal return after the fees have already been deducted Hence their retirement income stream is calculated to give; 7.11 % of 1484494.72 = $ 105547.57And therefore in a year it will be; $ 105547.57/ 7 = $ 15078.22Requirement CThere are many strategies that can be employed in order to boost the retirement income of the couple.
The common strategies, among others, are discussed as under: Strategy 1Having a salary sacrifice of $ 10,000 into superannuation rather than after tax contribution of $ 10,000 to superannuation. There are basically two ways through which people contribute in superannuation. Namely; Salary sacrifice contributionsLump sum contributionsSalary sacrifice into superannuation is basically any arrangement between a person and his employer through which the employee agrees to reduce his gross salary in order to top up the contributions made by the employer in the superannuation.
Salary sacrifice contribution is essentially the making of contributions to the superannuation from a person’s salary before tax but not from the salary after tax as is the case with the regular/ lump sum after tax contributions (Piggott and Bei, 2006). Thus, this strategy is good since it has the effect of reducing the amount paid for tax by the couple. This means a person is effectively paying a lesser income tax since the total taxable salary is reduced. It is worth noting that the employer superannuation contribution is taxed at a fixed rate of 15 % which is equivalent to the least tax margin rate.
Therefore if Bettina sacrificed $ 10,000 this amount would be taxed favourably than if it was to be taken purely as the cash salary. In spite of the small amount of cash Bettina may be having it cannot be overlooked since it can make a very big difference. The chart below shows how the salary sacrifice contributions can really boost a person’s super savings in the long run.
Just $25 extra a week from age 35 would add $58,500 to a person’s ultimate retirement amount. An extra of $50 a week would make an addition of $117,100. That is a little extra saving as of now in order to get a lifestyle of his choice in retirement. The assumptions made are based on the Australian Super calculator: Opening balance = $50,000 at age 35, the annual salary = $60,000, employer contributions = 9 %, before tax salary sacrifice contribution = $25 and $50 per week, Balanced Option investment return = 7.5 %, Weekly administrations fee = $ 1.50, investment management’s fee = 0.72 %, Age at retirement = 65.
The ultimate balance expressed in current dollars, calculated within a 30 year’s investment period. NB: Investment return is not assured as all the investments usually carry some level of risk. Also the past performances do not give an indication of the future returns. * The source of this information is the Australian Super Calculator, January, 2009.