Taxpayers should consider investing their tax cuts into superannuation ahead of the Federal Government’s $31 billion worth of tax cuts coming into effect on July 1.
According to modelling conducted by AMP, it is possible to retire with an extra $143,675 if tax cuts are directed into super.
AMP director of personal wealth management Andrew Hobern said super was one of the most tax effective ways to save for retirement, which is important considering more people are retiring earlier as life expectancy continues to rise.
“Australians now spend more than a quarter of their life in retirement, so the tax cuts are a perfect opportunity for people to boost their retirement savings,” Hobern said.
“For many people, their first thought when they come into extra money is to put at least some of it into the mortgage or pay off other debt — but it is worth considering other strategies. If you salary sacrifice your tax cuts or you put in extra money after tax and take advantage of the Government’s co-contribution, it may mean you retire with more money.”
AMP modelling shows that if a person with an annual tax saving of $600 takes advantage of the government’s co-contribution scheme and puts their tax cuts into super as an after tax personal contribution, based on an average super fund return of 7 per cent, they’ll have an extra $143,675 at retirement.
In comparison, if the same person redirected the tax cuts into their mortgage, with an 8.5 per cent per annum interest rate, they would only pay off an extra $77,696 by retirement age. That equates to a difference of $65,979 between putting tax cuts into super and paying off the mortgage.
