Should you enter retirement with a mortgage? The real numbers might surprise you
For many Australians approaching retirement, the home loan looms large, emotionally and financially. The dream of crossing the threshold into retirement with the mortgage stamped “paid” is deeply compelling. But is it always the smartest move? The answer, perhaps unsurprisingly, is, it depends.
The math of mortgage vs. super
The comparison starts with two numbers: what your debt costs you, and what your investments earn. As at 14 April 2026, average variable mortgage rates currently sit at approximately 6.65%[1].
Against that, the long-term average super return is approximately 7.5% per annum (ASFA, 30-year average, accumulation phase[2]). On raw numbers alone, super wins, but the gap is narrower than it appears once you factor in investment risk, sequencing risk near retirement, and the guaranteed nature of debt repayment.
Critically, superannuation carries a powerful tax advantage that further tips the scales. Concessional contributions are generally taxed at just 15% inside super (for income under $250,000), far below most people’s marginal income tax rate. For someone on a 39% marginal rate (inclusive of Medicare levy), salary-sacrificing into super is effectively a 24-cent-in-the-dollar saving before the first return is even earned.
The emotional dimension matters too
The decision is unlikely to be purely financial. Repaying the mortgage may give a sense of emotional security or the freedom to renovate or move on to a different property. That psychological peace of mind has genuine value. Sleeping well in retirement is part of the plan.
Strategies for different scenarios
The right approach depends heavily on your situation:
- If you’re within 10 years of retirement with a total super balance under $500,000, consider making the most of carry-forward concessional contributions. You can contribute the current year’s $30,000 cap plus any unused cap amounts from the previous five financial years, potentially contributing much more in a single year at concessional tax rates, while maintaining mortgage repayments.
- If you’re within 5 years of retirement, consider a hybrid strategy: salary sacrifice aggressively into super and use any after-tax surplus to accelerate mortgage repayments.
- If mortgage rates are high and your super balance is strong, there’s a genuine case to prioritise debt elimination for peace of mind, especially if you are eligible to commence an income stream from super, which will generate sufficient tax-free income to cover living costs.
- Consider using an offset account rather than lump-sum repayments. Funds in an offset account reduce the interest-bearing principal while remaining fully accessible for investment opportunities or emergencies.
Where an adviser adds real value
This is precisely the kind of decision that looks deceptively simple but unravels quickly in practice. A financial adviser can:
- Model the after-tax outcome of each strategy across your specific income, marginal rate, and super balance.
- Identify whether you’re eligible for carry-forward contributions before unused cap amounts expire at 30 June each year.
- Identify if you are eligible to commence an income stream using your superannuation and draw a tax-free income to supplement your income.
- Assess the Age Pension implications, for example, the home is generally exempt from the assets test as opposed to superannuation, which is means tested.
- Sequence your strategy across the years before retirement to both super and debt reduction outcomes.
- The mortgage-versus-super debate doesn’t have a universal winner. But with the right plan, you don’t have to choose one at the expense of the other. Advice from a qualified mortgage broker should also be considered.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
[1] Current home loan interest rates in Australia | Finder
[2] Account-Balances-Paper_v3-5.pdf
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