Ask the experts
Providing for the future as well as the present is a financial juggling act
NAME: Paul and Leanne Lynch
STATUS: Married with a four-year-old daughter, Matilda.
QUESTIONS: We are paying off our mortgage and building up our superannuation – are we on the right path? Should we also look to invest in property, buy a holiday house or perhaps borrow to invest in shares?
ANSWERS: Reduce the mortgage quickly and pay it off by the time Leanne retires. Fix part of your home loan to interest only. Consider using the equity in your home to buy other properties. Forget about buying a holiday home and opt for renting one.
With the rules about contributions to superannuation changing, it is a perfect time to ask the question about whether to pump up your retirement savings or pay off the mortgage. The govern- ment is cutting the concessional contribution cap from $30,000 ($35,000 for the over 50s) to $25,000 from July 1, making it harder for people to build up their super balances through tax-effective salary sacrificing (15% compared with a marginal rate up to 49%).
Weighing up between super or the mortgage is Paul and Leanne’s main question. They are building their dream home in an idyllic spot on the NSW Central Coast and their philosophy is to pay off the mortgage as quickly as possible. They are almost at the halfway point and ideally they want zero debt in the next 10 to 12 years.
At the same time they have their eye on the future and want to boost their super so that they have enough to do all the things they have dreamt about, such as travel widely. They both salary sacrifice but with lower contribution rates boosting low balances later will be harder. While they plan to retire from full-time work, they are happy to work part-time if necessary.
Are they on the right path or should they concentrate on the mortgage while rates are low? They have a mortgage with variable interest rates. Should they lock in at these low rates?
Is it a good financial move to have a holiday home in retirement? Paul and Leanne would love to get a unit at Shoal Bay, their favourite part of the NSW coast. A one-bedroom apartment costs around $350,000, rising to $500,000 for two bedrooms.
Would this be a sensible investment now, in the hope that it would be paid off by the time Paul retires, or would it be better to borrow and invest in shares, using the balance to purchase a holiday apartment once Paul retires?