Hi Tammy, should I focus on repaying my mortgage rather than continuing with additional contributions to Super?
Andrew, Balgowlah
Hi Andrew, with recent rate rises, and ongoing concerns about inflation, it’s crucial to reassess your financial strategy. When it comes to deciding between prioritising mortgage repayments, or additional contributions to Super, there are several factors to consider.
Making extra contributions to Super is an investment in your future. By regularly setting aside money in Super you give those funds time to grow and benefit from compounding returns. Moreover, there may be tax benefits, as these contributions can be tax-deductible, and the earnings within your super are taxed at a concessional rate.
On the other hand, paying off your mortgage quickly is a significant step towards achieving financial security and freedom. Making additional mortgage repayments helps reduce your overall interest cost and shortens the term of your loan.
Over the past 30 years the average rate of return on Super has been higher than the average interest cost on a home mortgage. When you also factor in Super tax savings, allocating funds to Super may be better for long-term wealth creation.
While it’s true that accessing your Super is generally restricted until retirement, focusing solely on repaying your mortgage first means you’ll need to catch up on Super later. Delaying building your Super until closer to retirement requires significantly higher contributions, since you won’t have as much time for your contributions to grow in value.
Finding a balance between both strategies is generally the best approach. The right balance will depend on your personal situation and risk tolerance. You can also take measures to reduce risk, to build your confidence to contribute more. For example, having a cash reserve in a mortgage offset, or redraw facility, can provide a buffer against rate rises or financial difficulties. Additionally, consider having appropriate insurance cover, like income replacement, disablement and trauma, to provide a safety net.
Quick Tips: Don’t put all your eggs in one basket. Diversify between mortgage and Super to reduce risk. Start contributing to Super as early as possible to minimise the amount you need to contribute later.
Any questions, please speak with your financial adviser, or call me to discuss on 8376 0350.
Regards, Tammy
Financial planner Tammy Marshman of Up Wealth Management is an Authorised Representative of Consultum Financial Advisers Pty Ltd, AFSL 230323. Phone 8376 0350 or visit upwealthmanagement.com.au.
This is general information only, as in preparing it we did not take into account your personal objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your personal circumstances. Although the information is considered reliable, we do not guarantee that it is accurate or complete and you should not rely upon it.
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