Ask Paul: Should I pay off my home loan or top up my super?

Dear Paul,

I am a 50-year-old single parent of a child in primary school. I work full-time and earn $97,000 a year. My super balance is about $217,000. I receive very little child support, perhaps $1000 
a year. 

I have just bought an apartment with a mortgage of $139,000 and I have $130,000 in an offset account. I need to buy a new, inexpensive car at some point and also maintain 
an emergency fund. 

With any extra money, I am wondering whether to pay off my mortgage as quickly as possible, put it into my super, buy some index funds, a combination of all of these things or something else I haven't thought of. 

I am currently not putting extra money into my super and am wondering also if I should do that throughout the year. Ideally, I would like to retire at 60. - Alex

It is great news that effectively you have your mortgage close to zero, Alex. In terms of paying it off, with interest rates at these levels I strongly support having a smaller mortgage, or no mortgage, but your offset account obviously gives you access to the money in it.

Flexibility is a good thing, so I suspect keeping a small balance is not a bad thing. I'd chat to your bank about this. The best scenario is maybe you have $139,000 in your offset account, you make zero repayments but maintain the offset.

Regardless of whether you pay off your mortgage or see if the bank has a solution to maintain it once the offset account is the same as your mortgage, you will have freed up quite a bit of cashflow.

With your income of $97,000, even after the July 1 tax cuts, you will be paying 30% on your income above $41,000, plus the Medicare levy of 2%.

You can salary sacrifice $30,000 into your super fund, but don't forget this includes your employer's contributions. Please check the exact amount, but it will be a bit over $11,000. This will leave you with the capacity to salary sacrifice in excess of $18,000.

On this you only pay 15% tax, a huge saving and more money for you to retire on. Inside super you also pay low levels of tax on the investments. Please do check you are in a low-cost, 
well-performing fund.

I'd suggest you just top up your super through your employer. For many decades, large, low-cost super funds have been averaging returns of around 9%. The sooner your money goes in, the sooner you start to benefit from compound returns.

Finally, if you need a car, you need a car. The commonsense comment you make is 'inexpensive'. Cars are a money pit and a depreciating asset. As I've said for about four decades, 'buy the cheapest car your ego can live with'.

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