Ask Paul: I used all my super to pay off debt - was this a mistake?


Dear Paul,

I am a 63-year-old female, no partner or children, and I recently gave up my position as a Registered Nurse due to COVID-19. I officially retired and took all my superannuation and paid off my mortgage and credit loans. 

Was this the right or wrong decision? As I'm a worrier, it's a relief not to have debt and now ownership of both properties. 

ask paul clitheroe super debt renovate sydney home

I have $70,000 left to invest and use wisely 

My asset are a home in Sydney worth $1.5 million and a $400,000 rural property in northern NSW that doesn't give an income. 

Should I renovate my Sydney home and rent it out and live a modest life in rural NSW, or invest my $70,0000 somewhere else? - Michele

Goodness Michele, you have made some really big decisions in a short period of time. I have to say that I would have preferred to answer your question about leaving money in super before you took it out!

You will get varying opinions here, but the technical answer in my opinion is that super would probably have delivered better returns than the interest on your home mortgage. A decent super fund has averaged around 7 to 9% a year over the last few decades, and your mortgage was likely to have been around 3%.

So personally, I would have left that money in super. Your credit loans were, I suspect, above 7 to 9%, so using super to pay out these makes sense.

But you are not me and I am not you. And you have given the best reason to take money out of super to pay off debt when you say "it is a relief not to have debt". Peace of mind is critical.

This is what I call the "sleep at night test". Frankly, paying off high interest personal debt or a loan on a quality property can never be that bad an idea.

My question now is what are you living on? You have retired before you qualify for an aged pension, so I presume you are using your savings. You have a very personal decision to make, which is really where do you want to live?

Obviously, renting your Sydney home would bring in buckets of money. You could live a modest rural lifestyle on that. Or you could use your savings, live in your home and await pension age.

With no dependents, once you took an aged pension, you could take the Government reverse mortgage option on your property and improve your lifestyle. Equally, you could sell and buy a smaller Sydney home, freeing up money for your lifestyle.

The key issue is you have solid assets. How you use them depends entirely on how and where you want to live. You need to work out your life plan, then the most effective use of assets and a potential future pension to support your lifestyle.

Get stories like this in our newsletters.

Related Stories

Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
Dave Junior
March 17, 2021 5.26pm

Go back to work Michele.

Michele williams
January 12, 2022 9.03pm

Thank you Paul, now January 2022.

I Decided to go back to some part time work. This has enable me to keep the money in super.

Dave junior yes work is so important to keep the home fires burning.

Covid got me and I left Sydney. Rented out Sydney home and rented on mid north coast. Yes right on the ocean .My game plan is to wait and decide where to live once pension age arrives.

Reverse mortgage and pension is excellent advice. Many thanks once again Paul.