Opinion
I’m recently divorced. Should I pay off my mortgage or boost my super?
Nicole Pedersen-McKinnon
Money contributorHi Nicole,
I have become single recently, unfortunately, at age 55. I am a professional woman but desperately need some advice on how to move forward with my finances. I consider myself to be a good money manager, as I took all my savings after my husband left and managed to put a roof over our heads (myself and two boys).
Is it a good idea to use my super to pay off the mortgage as soon as I can? I hate the interest. There is no settlement to speak of besides splitting the proceeds of a house we built a long time ago in our country. I am so proud I have been able to help my sons through uni, but I now feel a bit lost. Can you help?
Thanks a million,
Ruth.
Getting divorced unexpectedly can cause a significant hit to your finances.Credit: Getty
Ruth, know that you are not alone. The stats are crazy with a spike in divorces to 56,244 in 2021, after and amid COVID lockdowns. In the latest year for which we have numbers, 2022, there were another 49,241 final splits.
The average age of divorce is slightly up too, at 43.7 for women and 46.7 for men … so you’ve outlasted many! For your financial security, that is both good and bad.
It is good because you are close to being able to get at your super. It is bad because, though you are a professional woman, raising your two boys may well have suppressed contributions.
There are two simple – but also difficult – things you need to aim for at retirement: enough money to live on, and a property to live in.
Now, conventional wealth wisdom says that you want a home you can call your own – a fully paid-off one. But in your particular circumstances, I’d say the biggest opportunity to secure both money to live on and a place to live in is the super system and its perks.
This ‘super’-charged strategy could pay off your mortgage sooner and cheaper.
There are things you can do in your final years before retirement that boost it dramatically, and then you can withdraw the money that you have been able to amass more quickly that way to clear your home loan.
That withdrawal can also happen as early as 60 if you decide to retire then (note, you can start work again if you later choose). If that wasn’t just a few years away for you, Ruth, we would be having a different conversation – prioritising the mortgage over super is usually the safety play.
There is also another strategy good-sense check: is your job – and therefore income – secure? That’s important, because you’ll need the continuing ability to make your minimum mortgage repayments.
If the answer is yes, and with your boys through uni, think about starting to heavily salary sacrifice into super. You can now do up to $30,000 a year (the concessional contributions cap, which includes the 11.5 per cent your employer must pay).
Firstly, more goes into super by doing this than would come off your mortgage. This is because a salary sacrifice is pre-tax – less only 15 per cent contributions tax – versus paying your marginal tax rate before you get at any money to put on your mortgage.
Secondly, you could shovel even more into the tax-advantaged investment scheme that is super if you haven’t exhausted your allowable contributions in any of the past five years. The cap was $27,500 from July 1, 2021 to June 30, 2024, and $25,000 the years before that.
You could do the same with your property sale proceeds as well, to get that money earning returns in the lower-taxed super environment.
You could even claim a tax deduction for this contribution, thus cutting your personal tax bill, if you still have some available concessional contributions capacity (remember, you can mop up unused amounts going back five years).
It is all of the above super sweeteners that could give it the edge for you over the mortgage. You might also – bearing in mind that nothing in investment is guaranteed, and it’s possible your fund could fall in value – make returns several percentage points higher than the mortgage interest rate you would otherwise save.
This ‘super’-charged strategy could pay off your mortgage sooner and cheaper.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter or Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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