‘Should I put any extra money into super or my investment house?’

Q: I am 61 years of age and work full-time. Should I put any extra money I earn into my superannuation or into my investment house mortgage that I share with my son?

A: This is an interesting question and it involves a classic ‘trade-off’ that is often required when making investment decisions. Do I put more money into superannuation or make another choice? Putting additional money into superannuation, particularly by way of salary sacrifice, can provide substantial tax benefits. This is particularly the case when your salary is above $37,000 per annum.

The marginal tax rate at this level is 32.5 per cent and the contribution tax for putting money into super by way of salary sacrifice is only 15 per cent. Thus, every extra dollar into superannuation is saving you 17.5 per cent in tax. Furthermore, the money invested in super is subject to a lower tax rate on its earnings whilst you are still working and this tax rate drops to zero once you have retired. Thus, superannuation is an excellent vehicle for accumulating wealth in a tax-effective manner.

However, it must be balanced against the other choices you can make. Reducing your mortgage has the advantage of reducing the amount of interest you pay.

But we are currently in an environment where interest rates are the lowest they have been in many decades. From a purely tax and economic viewpoint, putting more money into superannuation is a better choice. Having said that, it will be sensible to ensure that you have paid off the mortgage before you retire. That said, you can withdraw money from superannuation after you retire for this purpose.

Of course, without knowing your detailed financial position, I cannot specifically recommend one course or another, however, my default position would be to add more money to super (particularly salary sacrifice) up to the maximum per annum of $25,000 rather than reducing your mortgage as you can access money from your super when you retire and reduce your mortgage that way.

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