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Pay off a loan or salary sacrifice?

As our kids have now left school and have good jobs we are now in a position to really improve our super and prepare for retirement, which is still 20 years away, though we would love to do it earlier. We have a home with $320,000 worth of debt and the place is worth around $850,000. Our combined super is about $600,000 and so I am wondering if you would recommend paying off the loan first or putting more into super using salary sacrifice?

This is a great question but it is impossible for me to give you a definitive answer without knowing all your goals and circumstances. I know we have had clients with the same goals and while some were better off paying off the house, others were more advantaged by doing the reverse. Financial advisers have software programs to work out what might be the best option, but they do rest on assumptions of expected returns, interest rates, etc. You could use home loan calculators and compare it to putting money into super at average return for the fund. But then there are tax considerations to think about. For example, if you pay off your house, sell it on retirement and roll some of it into your super, this could work but once again there are tax issues to consider. This is where a decent adviser can help but make sure he or she doesn’t always go for funds and discourages property plays because he can’t make money out of you investing in real estate. Good luck.

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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. 

Published on: Friday, April 16, 2010

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