Should you top up super or pay off the mortgage?


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Most of the time, paying off a mortgage is the obvious priority before boosting your superannuation fund.

However, there are some scenarios where it can be beneficial to salary sacrifice more income into your super ahead of the mortgage.

According to financial planner Bruce Brammall of Bruce Brammall Financial, the success of this strategy all depends on your tax rate and how much time you have left before retirement.

“If you’re within five years of retiring and your income is between $60,000 and $150,000 per year, then in five years you can probably build up another $15,000 to $20,000 to potentially pull out as a lump sum to pay off your mortgage,” he told Your Money Live.

By salary sacrificing more of your income into super, you avoid paying the higher tax rate, however you won’t easily be able to access the funds until retirement.

That means, the strategy only works if you’re near retirement and within a high enough income tax bracket, he explains.

How it works

Salary sacrificing is when a person makes additional contributions into their super account.

By doing so, they swap out their marginal tax rate for the superannuation income tax rate, which is 15 per cent.

“If you earn between $90,000 and $180,000 per year your marginal tax rate is 39 per cent, so if you decide to salary sacrifice, instead of paying 39 cents in the dollar you’ll pay 15 cents in the dollar,” explains Brammall.

That could equate to tens of thousands of dollars more by the time you retire, which could then be used to pay off your mortgage.

“If you don’t need the money for a couple of years, why not make a couple of extra thousand dollars each year, potentially, to be able to pay off an extra bit off your home loan.”

Brammall says that the strategy works best if interest rates on home loans are low and super returns are reasonably high.

However, he also warns that it’s unlikely to be a good strategy for anyone below the age of 50, unless they plan to retire early.

If you have more than a decade left on your retirement, the best strategy is to concentrate on paying off the home loan as quickly as possible.


Written by Loknath Das