Should I contribute to Super or pay down my mortgage?
Paying down debt is a wonderful thing. Every time you pay down the principal on your mortgage it is a saving made on interest and this equates to a guaranteed return made down the track. It’s also what most of us are taught to do by our parents while growing up and it feels good to watch debt reducing, but it is important to look beyond simply reducing debt if you are to make your money work for you, and super is one alternative to consider.
Superannuation is an investment that has significant tax benefits linked to it. It is also possible to invest within super with most of the flexibility we have as individuals, so it is indisputably a fantastic investment vehicle for retirement. There are several questions in this ‘FAQ list’ that explore how super works, when it is accessible and why you should consider growing it for your retirement.
When considering whether paying down your mortgage or investing in super is right for you right now, you need to weigh up a range of considerations. Some of these include:
- What your personal income is and in turn marginal tax rate you pay
- How far away you – and where applicable your partner – is from retirement
- What your current super balance/s are
- What your objectives are
- What your free cashflow position is
- How much super is already going into super
- What other investments you have outside of super
- What your equity position is
- What changes you can foresee in the future that might alter your cashflow or equity position
- Whether your current debt is non-deductible or tax deductible
If you choose to contribute to Super instead of paying down your debt, the opportunity cost exists in that you'll need to outperform the interest you could have saved on your mortgage. If you made your contribution to super from your pre-tax salary (refer to our FAQ 'Should I contribute to my super'), you'll also need to factor in the tax savings into your return to determine whether the choice resulted in a better outcome.
Speak to one of our degree qualified advisers about how this relates to you.
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The content of this presentation is intended to be general information only and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should consider its appropriateness having regard to these matters or obtain relevant professional financial advice before making any financial decisions. Examples are illustrative only. Each person should obtain any relevant professional financial, taxation and social security advice before making any financial decisions.