Question
Siong Wang is single, has just turned 25 years of age, and would like to retire comfortably on his 75th birthday. He is working as
Siong Wang is single, has just turned 25 years of age, and would like to retire comfortably on his 75th birthday. He is working as a politician and has no super or Private Health Insurance to this stage. His ordinary times earnings are $83,000 and he also receives a $5,000 Christmas bonus per year, and this is expected to remain the same indefinitely. Siong has analysed the available superannuation funds, which have a long term return of 7% after inflation.
Calculate the minimum annual dollar value that his employer needs to contribute into his superannuation fund under the Superannuation Guarantee Scheme and explain the significance of ordinary times earnings with respect to mandatory employer super contributions.
Assume that Siong wants to contribute up to his annual concessional contributions limit. How much of his salary will he need to sacrifice to achieve this?
Assume that Siong makes the maximum concessional contribution every year until the age of 75. How much money is he expected to accumulate in super by this age? (Use after tax contributions and monthly compounding). At what age and under what conditions can Siong start withdrawing money out of super?
Assume that Siong has a life expectancy of 80 years. How much of an annuity should he be able to draw out of his super fund per year in retirement, given the balance you have calculated in part c)? Assume that his money will be in an account based pension earning 7% p.a., compounded monthly, the balance will be zero upon his death and that there are no limits to super fund balances in the future.
Assume that in 2021, Siong does not earn any income other than his $88,000 income, and has no deductions or offsets. How much income tax can he save this year by making the maximum concessional contribution into his super fund, in comparison to not salary sacrificing at all? Show both tax calculations side by side, as well as net income after tax. Note that Superannuation Guarantee Scheme employer contributions are in addition to his $88,000 income. Include the medicare levy and medicare levy surcharge if applicable, and compare Siongs net income after tax achieved across both strategies .
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