It is only wise to keep a tab on your debt and pay it off as quickly as you possibly can. However, there is a new school of thought that suggests that debt payment must not jeopardise extra contributions to the Superannuation fund. While research clearly asserts the Australian inclination for mortgage payment (above Super), there is a consensus that such move may compromise those days when people are retired or out of work, especially when they do not have investments or savings to fall upon.
Prioritising mortgage over Super
The problem is that people get serious about their Super pretty late in life and by this time they have already lost whatever fair chance they may have had of compound interest working for their cause.
Compulsory contribution too low
At a time, when compulsory employer contribution is 9.5% and not 12%, which is the least needed to facilitate a decent retirement, thinking only about the mortgage and ignoring Super contributions can be a costly mistake.
It is startling that the number of people making extra contributions has come down from the last time a survey was conducted along similar lines. The extra contributions have many advantages, not the least that it allows you to diversify your portfolio rather than putting every cent in the real estate world.
Factor in taxation before making assumptions in favour of mortgage
Sometimes, people assume that it is wise to prioritise mortgage because the Super fund interest returns are weaker than the mortgage interest. However, people should not fail to factor in the taxation bit. It is worth remembering that money credited under the ‘mortgage’ tab is taxed at the marginal tax rate whereas cash that is salary sacrificed for Super is taxed at a much lesser value of 15%.
Which do you prioritise between mortgage and Super?