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WHY SUPER?

WHY INVEST IN SUPER?

See how Brad ended up with $5,000 more than Leonie, who invested in a term deposit.

Which investment do you think will come out in front after five years?

Leonie and Brad both earn $50,000 per year and receive an additional $5,000 annual bonus from their employer. They want to save their bonus each year for the next five years, to give their retirement savings a boost. Both want to take as little risk with their investment as possible.

Leonie chooses to invest her $5,000 each year in a term deposit account, while Brad decides to invest his $5,000 each year in his superannuation.

Leonie’s term deposit pays 6% per annum and Brad chooses a cash investment portfolio for his super which has an average return of 5% per annum over the five years.

 

Leonie has to pay 31.5%* income tax on her bonus before she can invest in her term deposit, leaving her with $3,425 to invest. Meanwhile, Brad chooses to contribute his $5,000 to super by salary sacrifice, so he only pays 15% contributions tax, leaving him with $4,250 to invest each year.

Over the years Leonie also has to pay income tax at 31.5% on the interest she earns, while Brad’s superannuation return is already net of tax (at the lower rate of 15%) and fees.

After five years of saving, Leonie has $19,400 in her bank account and Brad has $24,700 in his super – a difference of more than $5,000! By taking advantage of the favourable tax treatment of super, Brad has made the most of his savings.

*including Medicare levy