A safe house or a super bet
What’s the best long-term strategy for spare cash — your home or your future?, asks
SUPER versus the mortgage. It’s a ring-a-ding debate that rivals property versus shares when it comes to deciding where you put spare money.
Experts say the best place for your cash will depend on factors such as your lifestyle needs, debt levels, age and income tax bracket. And it’s worth doing the sums to work out what’s best for you.
RateCity compared average mortgage rates over the past 20 years with super funds and found that super was generally the winner in a financial sense because of its concessional 15 per cent tax rates.
However, pumping extra money into super is not always attractive for people in their 30s and 40s because they can’t get to it until retirement.
“Having everything in super (means it) is locked away,” RateCity superannuation specialist Jeremy Willink says.
By contrast, mortgage offset accounts and redraw facilities can add flexibility to a mortgage, but have come with the temptation to spend your savings elsewhere.
Willink says moneysmart.gov.au’s retirement calculator is a great tool for projecting how much your super will grow during your working life, and shows the benefits of making extra contributions.
When looking at your super, make sure you’re getting value for your money and shop around if needed, Willink says. “Look at the fees and performance of your super fund because that can really make a big difference,” he says.
“Check 10-year returns – don’t just look at what happened last year or in the past three years.”
Wise Owl Financial adviser Allan Ward agrees that super is probably a winner from a numbers perspective, but for some, nothing’s nicer than watching the mortgage shrink.
Ward says many people aged over 56 can start a transition to retirement strategy where they pour extra money into super – gaining tax benefits – and withdraw up to 10 per cent of their nest egg tax-free to pay the bills. “Even if they’re 50 they can dump money into super in pre-tax dollars and in six years’ time start a TTR pension and make a significant reduction off their mortgage,” he says.
It’s a bit murkier for people aged under 50. “Ninety-five per cent of people in that age group just want to pay off their mortgage,” Ward says.
“Think it through and have a plan for once the debt is repaid. The only catch is that people get the debt reduced then go and buy a bigger home – it starts all over again and the cash into super never happens.”