Get rid of the ‘bad’ debt first

You are definitely on the right path by taking control of your retirement plans now while time is on your side.

Reduce that mortgage

For most clients the best strategy is to focus with religious-like zeal on reducing the mortgage as soon as possible. You know with certainty that you have to pay interest on this debt and that the debt is bad (that is, non-taxdeductible). Reducing the mortgage will take a huge financial load off your shoulders in retirement, and provide certainty and opportunity.

Try to push yourselves to pay off your mortgage well before Leanne retires, as this will put you in a great position in the years before retirement.

Locking in an interest rate is always a bit of a gamble when rates are decreasing but it gives you certainty when they are increasing. Comparing the variable and fixed rates gives you an idea if banks think interest rates will move. Lock in some of your debt and leave some variable – this can be a good way to hedge your bets.

Turbocharge your savings

It is great that you each salary sacrifice to your retirement savings in a tax-effective manner. Assuming you continue to do this, with 5% annual growth in super and 9.5% compulsory contributions you should have combined super of just under $2 million when Leanne intends to retire aged 65.

If over time you hit the new $25,000 concessional cap, consider making personal (or non-concessional) contributions as a top-up. Once you have paid off your mortgage, then you can consider making additional contributions to super or investing outside super.

Review your super

You both have accounts with NGS, a reputable low-cost industry fund. Check to see if it offers any low-cost insurance to protect your family while you still have debt and Matilda is young. Leanne is in the relatively safe balanced option. Given her super will be invested for at least another 13 to 14 years before retirement, she may consider the growth option.

If you pay off your mortgage earlier than expected, well before Leanne’s retirement, then consider investing outside super.

While a holiday home sounds wonderful, in retirement you need a portfolio of assets that gives you a tax-effective income stream to support your dream lifestyle. A holiday home needs to be managed and rented year round and will regularly need maintenance and improvement. It may be cheaper to factor the cost of renting a holiday house in your budget each year.

You have the basis for a sound financial plan that will give you security and support your dream retirement. With a few tweaks I’m confident that you’ll be celebrating the rewards of all your hard work!