Out of the blue you receive a cash windfall, it is a decent amount and definitely extra above what you need to meet your normal living expenses. You decide not to blow it on some luxury treat for yourself and to put it to use to improve your financial situation.
But which would be the best choice, put it into the mortgage, or into super?
The answer, as with most things in financial planning, is “it depends”.
Paying off your home loan as quickly as possible is a great idea. The interest is usually not tax deductible and owning your place outright is a great feeling. Reducing the balance owing on your loan reduces your regular interest payments and frees up extra cash to use for other things.
Saving for your retirement is also really important. Many people are concerned that they will not accumulate enough to be able to stop working and there are conflicting opinions about how much you need to fund a comfortable retirement. There are also no guarantees that the Centrelink Age Pension will remain available to the same level and in the same way as it is now.
Then there is the question of how to pay the cash into super. Depending whether your contribution is considered to be Concessional or Non-Concessional will affect the taxation treatment of the money within your super fund and possibly on your own tax return. There are contribution caps in place that can result in your payment being returned to you, or even penalty tax being charged to your account. The rules about contributions have changed on Federal Budget day 2016 and will change further when the proposed additional modifications become law in July 2017.
There is a lot to consider.
And then there may be an even better third option for using the money that you hadn’t previously thought of.
Professional financial planners are up to date with the rules and regulations and aware of any proposed legislative changes. They have access to sophisticated software that can model the effect of different strategies on your position over time. It is possible for them to compare alternatives and recommend which one is best for your particular circumstances and preferences. They can then work with you to make sure that the chosen strategy is implemented correctly, so that you receive the most benefit.
In addition, a non-aligned, fee for service planner will not have any financial incentive to recommend any option over and above another. For us it is about the strategy, not the product.
Please note that all information provided is of a general nature and does not take into account your current financial situation, needs or objectives. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. We recommend those seeking insurance or making an investment obtain financial advice specific to their situation and consider the Product Disclosure Statement prior to making any financial investment or insurance decision.
Reduce the mortgage or contribute to super, that is the question was last modified: January 9th, 2018 by Anne Taylor
Reduce the mortgage or contribute to super, that is the question