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  • Writer's pictureTyson Jonas

Retirement Planning - Pay Down Your Mortgage or Contribute to Super

Retirement planning is a critical aspect of financial planning, especially in Australia where citizens are expected to finance their retirement years with their savings. Starting early is crucial to building a secure retirement fund, and investing in superannuation and paying down the mortgage are two popular options for retirement savings.


Early retirement planning is crucial because it gives individuals more time to accumulate the necessary savings and assets to support themselves during retirement. This is particularly important in Australia, where the cost of living is high, and the average lifespan is increasing.


With longer life expectancies, individuals need to ensure that they have enough resources to support themselves throughout their retirement years.


Early retirement planning also allows individuals to take advantage of compound interest and the power of time. The earlier individuals start planning for retirement, the more time their savings and investments have to grow. This can significantly increase the amount of money available to them during their retirement years, which can be crucial in ensuring a comfortable standard of living.




Superannuation, for most Australians is an accumulation based retirement savings plan that is mandatory for most employees in Australia. The Australian government requires employers to contribute 10.5% of an employee's salary to their superannuation account, and employees are also allowed to make additional contributions to their account. Superannuation funds are managed by professional fund managers who invest the money in a mix of assets such as stocks, bonds, and real estate. The returns from these investments are used to finance the retiree's income during their retirement years.


Paying down the mortgage, on the other hand, is a method of reducing the outstanding balance of a home loan by making additional payments. By reducing the outstanding balance, the interest payable on the loan decreases, resulting in the loan being paid off sooner and freeing up cash flow for the retiree.


When deciding whether to pay down the mortgage or contribute to superannuation, there are several factors to consider, including:

  1. Age: Age is an important factor to consider when deciding between paying down the mortgage and contributing to superannuation. If you are close to retirement, paying down the mortgage may be the more attractive option as it provides immediate financial relief in the form of reduced interest payments. However, if you are younger, contributing to superannuation may be the better option as it provides more time for the investment to grow.

  2. Investment returns: The returns on superannuation investments can be higher than the interest saved by paying down the mortgage. Over time, the investment returns from superannuation can add up to a substantial sum, making it a more attractive option for retirement savings.

  3. Risk tolerance: Superannuation investments are subject to market risks, and the returns can be volatile. If you are risk-averse, paying down the mortgage may be the safer option as it provides a guaranteed return in the form of reduced interest payments.

  4. Interest Rates: Interest rates play a significant role in determining the best course of action. If interest rates are low, it may make sense to pay down the mortgage, as this will reduce the amount of interest paid over the life of the loan. However, if interest rates are high, it may be more advantageous to contribute to superannuation, as this will provide greater returns on investment.

  5. Tax Benefits: The Australian government provides tax benefits for superannuation contributions, which can make it a more attractive option for many individuals. Contributions to superannuation are taxed at a lower rate than income, and the money in a superannuation fund is taxed at a lower rate than income when it is withdrawn.

  6. Personal Financial Goals: Personal financial goals are also an important factor to consider when making a decision. If individuals have other financial goals, such as saving for a home or starting a business, it may make sense to pay down the mortgage, as this will free up more money for these other goals. However, if retirement is the primary financial goal, it may be more beneficial to contribute to superannuation.

Retirement planning is an essential aspect of financial planning in Australia, and it's crucial to start planning early to ensure that individuals have enough resources to support themselves during their golden years. When deciding whether to pay down the mortgage or contribute to superannuation, individuals should consider factors such as interest rates, tax benefits, age, and personal financial goals. Ultimately, the best option will depend on your personal circumstances and financial goals, and it is advisable to seek professional financial advice to help make an informed decision.



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