New rules allowing ordinary salary earners to claim a tax deduction for their personal superannuation contributions puts the $1.6 million retirement superannuation balance within reach.
From 1 July 2017, standard salary earners have been able to claim a tax deduction for their personal superannuation contributions without entering into a salary sacrificing arrangement with their employer.
Now that a tax deduction is available for additional contributions, locking money away in superannuation until retirement has become more palatable for many.
The aim should be to build your super balance by maximising your annual deductible limit where possible so that the $1.6 million cap on superannuation balances becomes a reality.
The key is to not rely on the minimum superannuation guarantee contribution but start as early as you can to seek ways to increase contributions.
Take the example of a 40 year old with a super balance of $100,000.
If they commit to making the maximum concessional contribution of $25,000 a year, their superannuation balance would reach $1.3 million by age 65 (assuming an average real return of five percent a year, net of inflation).
In contrast, a 50 year old with the same opening balance of $100,000 would be significantly worse off, reaching just $661,000 by age 65 with the maximum contributions.
Previously, superannuation used to only be discussed when nearing retirement, and the old rules allowed significant super contributions. However, with lower contribution limits now in place, consideration to building up a large superannuation balance needs to start 10 years earlier.
Now that ordinary salary earners can claim a tax deduction for super contributions, it provides a very good reason to start putting more into super.