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Loading ...Superannuation or Mortgage?
September 29, 2008 by Josie Kay
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Q. Should I pay off my mortgage first or salary sacrifice into super?
Josie’s Answer: Good question and very difficult to answer. It all depends on your priorities, your savings discipline and your spending patterns.
Generally speaking, it is considered wise to clear non-deductible debt, e.g. mortgage on the family home, because it is safer, you are getting a guaranteed return and the tax man doesn’t take his share.
In effect you will receive a guaranteed saving of the interest reduction with no downside. This is assuming you haven’t accumulated credit card debt or have personal loans which have a high interest rate!
Salary sacrificing is where you make a pre-tax contribution to your superannuation fund, so rather than pay your normal marginal tax rate which for most is over 30% ($30,000 to $80,000 - 2008/09 and not including medicare levy of 1.5%, you will only be half that amount -15%.
You will be saving tax, but you are also restricted access to these funds until retirement. You need to work out what is best for you. You might want access to that money some time in the future for say renovations on the house.
On the other hand, if you are a hopeless saver, then superannuation may be the best option because won’t have the temptation to spend it.
I have never had anyone complain they saved too much for retirement! Also, remember, it is tax free at age 60, so it doesn’t get better than that.
Josie’s Quick Money Saving Links:
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Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs. Also remember, that apathy can end up being your biggest expense!
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