Ask Paul: I'm 62, should I cash out all my super to pay off the house?

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Dear Paul,

I'll be 63 this year and likely to continue to work until who knows when.

But I'm looking at moving interstate to live with my partner, who has his own properties. We do not plan on amalgamating our finances.

ask paul should i use my super to pay off my house

I'm considering using my super to pay off my $120,000 mortgage, which will leave me with no super, but I would use rent from the property and contribute towards my super with work I hope to gain in my new state.

Is it wise? It would be a weight off my mind having the mortgage paid off.

Thanks for any advice in advance. I used to watch you on TV back in the day. - Glenda

TV was certainly back in the day for me, Glenda. I hosted the Money TV show throughout its lifetime from 1993 to about 2002.

That was really good fun. It was basically just the four big TV channels back then and we used to get a huge audience at 8pm on a Wednesday.

Money was not spoken about much back then and I think the TV show did help by giving a big boost to people's knowledge. Its success also led to far more coverage of money issues, which is terrific.

We are ageing along similar lines. I'm 66 this year, with adult kids and grandkids - it's all quite amazing.

I'd better get back to your question. Here we might have to have a bit of a squabble. I don't want you to pull money out of super to pay off your mortgage. I hope your mortgage is costing you under 3%, and maybe closer to 2.5%.

Your rent will cover this easily and the fact that you have interest payments means it comes off the mortgage interest you receive for tax purposes. So the actual after-tax cost of your mortgage is very low.

Then we turn to your super. Make sure you are in a large, well-managed, solidly performing super fund with low fees. I would expect your average returns over the past decade to be over 8%pa.

Let's think about this.

Do you want to have $120,000 in super with the potential to earn really good returns or pay down your mortgage, which effectively means that you are earning, after the tax benefit, barely 2%.

If super plods along at its historic average, you are likely to be throwing away some 6% a year, or over $6000 of your hard-earned money.

Look, I get the peace of mind argument about paying off your mortgage, but I can't have you throwing away "free" money without you and I having a debate. The sleep-at-night test is critical, but personally I would lose sleep at night knowing I was chucking money out the window.

Your call, but I know what I would do in your shoes. And that would not be paying off the mortgage. That can be done at any time in the future.

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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. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
Comments
Liz Johnson
July 28, 2021 8.21pm

Hi Paul,

Just wonderingly whether to sell my residence worth $300000.00 sign no mortgage and move into my investment unit worth $300000.00 and use the money from the sale to split between Super and reducing the mortgage to approx $100000.00 . Alternative to keep both properties and continue to rent one out. I paid $250000.00 3 years ago and it can rent for $360.00 p/w due to the location. Any thoughts please? Thank you in advance

Kindest regards

Liz

Money magazine
Verified
July 29, 2021 8.29am

Hi Liz,

Thanks for your email.

Unfortunately, Paul cannot respond to comments, but we will pass your question along to him for his consideration for a future issue of Money magazine.

- Money team

Sally N
July 30, 2021 12.48pm

Hi Liz, depending on your age and how long you will be working, I would hold onto the investment property and keep getting the rent. If at some point you retire then I would reassess the situation but if you have no mortgage on your primary residence and are getting healthy rent on the investment it makes sense to hold on to an investment and hope it goes up further in value. I am not an expert so just my opinion.