Should I max out my super contributions?

Contributing extra to your superannuation can be a beneficial strategy for both your current financial situation and your future retirement. Since you earn $60,000 per year, making additional contributions to your super can have several advantages.

1. Tax Benefits: Contributions made to your superannuation from your pre-tax income, known as concessional contributions, are taxed at a rate of 15%, which is likely lower than your marginal tax rate. At an income of $60,000, your marginal tax rate is 32.5% (excluding the Medicare levy). This difference can result in significant tax savings. For example, if you contribute an additional $10,000 to your super, you could save approximately $1,750 in taxes for that year.

2. Compound Interest: By increasing your super balance, you’re providing more capital to grow over time through compound interest. The effect of compounding becomes more powerful over a longer period. Since you’re 28, the contributions you make now have decades to grow before you retire, potentially increasing your retirement fund substantially.

3. Lower Lifetime Taxable Income: Regularly contributing extra to your super can reduce your taxable income each year, potentially placing you in a lower tax bracket, especially beneficial if you’re close to the threshold of a higher tax bracket.

However, there are also considerations and potential reasons why you might choose not to max out your super contributions:

• Liquidity: Money contributed to super is locked away until you reach your preservation age (currently between 55 and 60, depending on when you were born). If you anticipate needing funds for other significant expenses (e.g., buying a home, starting a business), you might prefer to keep some of your savings more accessible.

• Contribution Caps: As mentioned, there is a cap on how much you can contribute to your super at the

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Hi Charlotte.

Pros and cons to both options, and a lot to discuss. Here’s a couple of quick thoughts…

Benefits:
– Tax deductible and can result in being able to invest more than you could outside super
– The difference of tax savings and adding to super can result in a massive boost to your super by age 60
– Set and forget, nothing to really do except add the money and watch it grow over time. Investing outside super requires you to learn a little more plus manage the portfolio (even tho that can be very simple).

Downsides:
– You lose access to the money till age 60
– Investing the money outside super gives you the ability to use it towards a home and paying it off, or investing and building a good position to potentially semi-retire etc far earlier than 60.

$60k of income is also not to the point where you are on a high tax rate and can really benefit the most from the tax savings. If your income was a lot higher, say $100k, it then makes a much bigger difference while still leaving you with cash to do the other things mentioned outside super.

Have a think about what best suits your situation and which benefits/cons are most important to you.