Reduced Mortgage or Increased Retirement Savings?

An article from Money Manager in Australia Has come up with an interesting idea of converting your mortgage to an interest only loan to reduce repayments and then pouring as much money as possible into your retirement fund. The idea is that by the time you reach retirement age you will still have a mortgage but you will also have enough money in your Super or 401k fund to pay off your home in one lump sum and be better off financially than you would if you just payed off your home loan. This strategy is better for people of at least 40-50 years old as their are drawbacks and people in this age bracket are getting closer to retirement.

Super Versus Mortgage
"We've had it drummed into us for years by financial advisers - the best investment strategy is to pay off all non-tax-deductible debt as fast as possible. For most of us, that means the home loan.

Pouring all your spare cash into paying off the mortgage reduces the total interest bill and gives a risk-free effective after-tax return equivalent to the home loan interest rate (presently about 7.5 per cent). Plus, when you sell the family home, any capital gain is tax-free.

Now, however, the picture is a little murkier. The Federal budgets proposed changes to superannuation, announced in May, will allow anyone who has reached the age of 60 to withdraw super without paying tax on it. Reasonable benefit limits will be abolished and everyone can contribute a maximum deductible $50,000 a year to super."
Money Manager

# Retirement Planning