Acquired Financial Planning

Case Studies

Basics of Super Case Studies

Case study 1: Salary sacrifice

John earns $75,000 pa and his tax rate is 31.5%. He wants to put away an extra $5,000 a year towards his retirement, but he’s not sure whether the tax advantages to be gained from investing in super are worth tying his money up. His other option is to invest outside super.

John has heard about salary sacrifice, a strategy where you ask your employer to take extra money out of your pre-tax salary and contribute it to super. As well as boosting your super, this strategy also reduces your taxable income, so you pay less income tax.

John decides to compare how much he could save by salary sacrificing $5,000 into super with how much he could save by investing the same amount outside super. For the purposes of this example, we’ve assumed that both investments would provide a return of 7% pa.

After 20 years John’s savings could be:
Inside super $108,123
Outside super $78,369.
That’s an extra $29,754 if John salary sacrifices into super.

Notes

This table is for illustrative purposes only. It does not represent actual or expected returns for any particular funds. A change to one or more of the variables and assumptions listed will produce different results.

* 15% contributions tax is deducted from John’s contribution on the way into his super fund.

** This table assumes pre-tax returns of 7% pa (4% income, 3% capital growth). Assets are realised every five years and two-thirds of any capital gains are taxed at 15% in super and 50% are taxed at the marginal tax rate of 31.5% outside super. Income is 30% franked at the company tax rate of 30%. Results are adjusted for inflation of 2.5%.

*** The financial position after Year 1 consists of after-tax return on 4% income growth and pre-tax return on 3% capital growth.

Case study 2: Investing in growth assets)

Helen and Christian each want to invest $100,000 into superannuation. Helen chooses a conservative option with a projected earning rate of 6% pa. Christian is a bit more relaxed and opts for a growth-oriented option, which contains specific growth assets such as shares and property and has a projected return of 8% pa. While his projected return is higher than that of the conservative portfolio Helen has chosen, which invests mostly in cash and fixed interest, Christian’s choice involves more risk.

Because super is a long-term investment, Christian thinks he has plenty of time to ride out any ups and downs in the markets. He believes that growth assets are likely to be more effective in building a decent retirement nest egg and while there are some risks involved, he’s willing to accept short-term volatility in return for higher returns over the long term.

Helen and Christian ask their financial adviser to compare the two options. The adviser’s comparison shows that after 20 years Christian’s $100,000 investment would grow to $466,096 while Helen’s balance would be $320,714 . A difference of just 2% pa in performance resulted in Christian’s growth portfolio accumulating $145,382 more than Helen’s conservative portfolio.

Notes

Source: Colonial First State. This chart is for illustrative purposes only and does not represent actual or expected returns for any particular funds. A change in one or more of the variables or assumptions listed will produce different results. Generally, the higher the potential return, the greater the risk of investment loss. This chart compares assumed returns of 6% pa and 8% pa (after fees and taxes) over 20 years on a starting balance of $100,000. Results are not adjusted for inflation. Please note that over long periods of time, inflation can substantially reduce the purchasing power of your money.

Disclaimer

These case studies are for illustrative purposes only. They are not based on a particular person’s circumstances and are not personal advice. As this information has been prepared without considering your objectives, financial situation or needs, you should consider its appropriateness to your circumstances. You should seek assistance from your financial adviser before acting on this information. AIW Dealer Services ABN 59 153 322 420, AFSL 414256.

Sound advice is the key to success

As you can see from these case studies, a carefully thought-out strategy could make all the difference to achieving your goals. Acquired Wealth Pty Ltd offers knowledge, expertise and experience. We’ll take the time to understand your individual circumstances and retirement goals, and then recommend appropriate superannuation strategies to help you achieve them.

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