But for most self-employed folks, this is exactly what happens. All because nobody made it clear how to grow your super investments, by conveniently slashing your tax using superannuation...
Are you ready for a truth bomb?
When it comes to your super, this is what you simply CAN'T control:
But, more importantly, here’s what you CAN control:
This after-tax focus on wealth is particularly important when you’re self-employed. Because you don’t want too much tax and high investment management fees potentially eating up a sizeable chunk of your real returns.
If you’re not quite sure how to use super to legitimately reduce your tax, let’s fix that.
Because it’s actually a really useful strategy.
You see, money inside super is taxed at 15%, versus outside of super where it’s taxed at your marginal tax rate (which can be as high as 45%).
But if you want to claim a tax deduction on the money you contribute, it's important to keep in mind that it's actually not enough to simply make a Personal Contribution into your super. You have to do a few more things – which are outlined in detail in this blog post.
As an example, let's say this is Alex.
She's a 34 year old freelance copywriter who sees herself retiring at 67.
Alex earns a solid average of $85,000 a year and she also gets taxed solidly on that amount, too.
After years of procrastination, she finally decides to do something about her retirement and commits to saving $125 a week.
Very quickly, Alex notices how much less tax she pays if she starts saving inside super and claiming her contributions as a tax deduction.
She also sees how it boosts her retirement stash in the future, compared to the same investment outside of super:
So by saving for retirement using super – and claiming contributions as a tax deduction – Alex slashes her taxes and pockets an additional $81k in retirement savings.
And because Alex will be over 60 years old when she retires, she can access her superannuation savings tax-free.
Thank you Mr Taxman!
* For more information on how super is taxed, visit the government’s MoneySmart website here.
Once you’re paying less money in taxes, you’ve then got more inside your investments to keep compounding over the long term.
And stashing that money into low-cost, low-tax index funds – with a steady return – is a great way to build your retirement wealth.
No wonder Warren Buffett is always praising index funds*.
All the investment options in GigSuper are built using index funds. This means you won’t be paying fund managers unnecessarily hefty fees to try to outperform the market...because in the long run, that’s an extremely difficult task to pull off. Refer to our Investment Guide for full details.
Another handy thing about index funds is their tendency to have a lower turnover of assets.
From a tax perspective, this typically leads to less capital gains tax being triggered. Which is great for keeping the Taxman from binging on your investment returns as intensely as he’d like to.
*To be clear, he's endorsing index funds, not GigSuper. If he does endorse us, you can bet we’ll let you know.