Should I focus on paying off my mortgage or growing my super? I have just turned 62, and I still owe $253,954 on my mortgage. I have $194,700 in my super, and I have another 5 years to go before I will retire.
A foundational assumption here is that the goal at retirement is to be debt-free and own the roof over our heads. This makes both financial and psychological sense.
Owning a roof over our heads and being debt-free in retirement is a common goal. But doing so can come at the expense of extra earnings.
Flowing from this assumption, you want that mortgage cleared five years from now. There are a few ways this could be achieved. If you have sufficient surplus income, it could simply be paid off over the next five years. I say simply, but realistically, that requires about $50,000 a year of repayments, which is no small ask.
You could instead continue at your current level of repayments and then do a lump sum withdrawal from super at retirement to clear whatever balance remains. The drawback here is that you then have less retirement income due to your lower remaining superannuation balance.
At 67 years of age you will likely qualify for the age pension, however, so there would be at least some income coming into the household.
A third option would be to downsize your home, clearing any remaining mortgage and potentially even boosting your superannuation savings.
I don’t know enough about your circumstance to know whether this third option is viable for you, but I’d certainly encourage you to give it some thought and exploration, as this path is likely to provide you with the highest quality retirement given the potential for greater retirement income.
Assuming our focus is on one of the first two options, we need to balance the interest saved on the mortgage by directing savings there versus the growth on the super fund if you were to instead point your savings in that direction. Tax complicates matters considerably.
If we assume you earn $100,000 per year, your employer will contribute $11,500 to your superannuation account this financial year. The maximum tax-deductible super contributions that could be made are currently $30,000 in a given year. You, therefore, have $18,500 of headroom.
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