If you’re in your 50s or 60s and have some extra savings to put to work, what should you do? Pay off the mortgage? Or contribute more to super?

This is one of the most common questions we get from clients approaching retirement.

In this article, we’ll walk through the pros and cons of each option and run a simple, side-by-side scenario to see how they compare. By the end, you’ll have a clearer framework and more confidence to choose the path that best suits you.

Prefer to watch? Our video covers the topic:

The dilemma: to pay off my mortgage or contribute to super?

Whether it’s from a pay rise or the kids moving out, many Australians in their 50s and 60s find themselves with extra money to put to work. So, what’s the smartest way to use it?

At this stage of life, it often comes down to two key choices:

1. Pay down your mortgage, to become debt-free sooner
2. Top up your super, to boost your retirement savings.

Both options have their pros and cons — and choosing between them is part numbers, part personal preference.

Let’s start by looking at the numbers.

A simple comparison framework

To help compare the two options, we’ll first look at:

• the interest rate you’re paying on your home loan, and
• the return you’re expecting from your super.

We’ll also factor in tax, since super contributions (like salary sacrificing) often come with tax advantages that mortgage repayments don’t provide.

Let’s have a look at a case study.

Steve’s wondering: Should I put it into my mortgage or salary sacrifice it into my super?

Let’s compare.

Option A: Steve puts the $12,000 into his mortgage

Extra repayments can reduce the size of your loan, the interest you pay, and the number of years it takes to pay off your home.

The numbers

In Steve’s case, putting the $12,000 into his mortgage would save him around $600 a year in interest:

5% p.a. (home loan interest rate) x $12,000 = $600 annual interest saved

That’s like getting a guaranteed 5% p.a. return each and every year for the life of the loan — and since it’s a saving, not income, it’s tax-free.

Pros of option A:

• a guaranteed return equal to your home loan interest rate — and it’s tax-free
• debt reduction and greater peace of mind as you approach retirement
• access to funds through an offset or redraw facility (if available).

Cons of option A:

• lower potential returns compared to long-term superannuation growth
• missed opportunity to boost your super while you’re still working and eligible to make tax-effective contributions.

Option B: Steve contributes the $12,000 into his super

Contributing to your super via salary sacrifice is a way to boost your super using pre-tax income.

The numbers

Instead of using $12,000 of after-tax money to pay off his mortgage (option A), Steve could salary sacrifice the equivalent pre-tax income into super, around $17,143.

Super contributions are taxed at 15%, so that leaves $14,572 going into his account.

That’s already $2,572 more he can contribute to super.

Assuming a 5% p.a. return, the $14,572 earns around $728 in a year.

Then we take out 15% tax on earnings which brings it down to about $619 net earnings.

In this case, Steve earns around $619 in super, which is slightly more than the $600 he would save on mortgage interest.

*Important: returns in super aren’t guaranteed and can vary depending on market performance.

Pros of option B:

• higher long-term return potential, depending on home loan interest rates and super performance
• tax savings on both contributions and investment earnings

Cons of option B:

• no guaranteed return since superannuation is subject to market fluctuations
• limited access to funds, as super is preserved (or ‘locked away’) until you retire or meet another condition of release.

Salary sacrifice is just one of several smart strategies that can help boost your super and reduce tax. Explore nine more essential retirement planning strategies to help you make the most of your later working years.

Side-by-side comparison: which option comes out ahead?

To make the differences easier to compare, here’s a simple breakdown of the key factors based on Steve’s situation. You can use this as a practical framework when weighing up your own options.

In Steve’s scenario, from a dollar-based, option B (contributing to super) comes out ahead. Firstly by using pretax dollars and contributing to super as opposed to using after-tax savings, Steve is able to contribute $2,572 more to super.

The effective return p.a. is also better for option B ($600 vs. $619). However, these numbers can vary significantly depending on your personal situation, market conditions, and how your super is invested.

For example, if your home mortgage rate was only 3% p.a. and your super was averaging a return of, say, 8% p.a., the difference would be $631 p.a. instead of $19 p.a.

Beyond the numbers, the right choice for you depends on your personal circumstances. That’s why it’s helpful to start with a comparison like the above and then personalise your decision.

In the next section, we’ll build on this by looking at other key factors — like your tax position, stage of life, and how comfortable you feel with debt versus investing.

Pay off the mortgage or invest in super: how to personalise this decision

Everyone’s situation is unique, so it’s important to adjust the framework based on your own circumstances.

Here are some key financial factors to consider:

• Home loan interest rate – We used 5% in our example, but rates can change. If yours is closer to 3-4%, the benefit of paying down your mortgage may be smaller.
• Expected super returns – We assumed a 5% return, but actual returns depend on your investment mix and risk level. If you’re in a growth option and can tolerate more risk, you might expect a higher long-term return — this could favour super contributions even more.
• Tax rate – The higher your marginal tax rate, the more you can benefit from salary sacrificing into super. Unsure of your current rate? Look it up via the Government’s MoneySmart Income Tax Calculator.

The decision isn’t just about numbers — how you feel matters too.

Here are some other factors that can help shape your choice:

• Debt mindset and emotional wellbeing – If reducing debt helps you feel more secure or in control, that peace of mind might outweigh the potential for slightly higher returns elsewhere.
• Access to funds – Mortgage options, such as offset or redraw facilities, offer flexibility. Super, on the other hand, is locked away until you reach retirement age or meet another condition of release.
• Timing of retirement – If retirement is approaching, you may want to reduce debt for peace of mind, or boost your super while you still can. The right focus depends on how prepared you already are in either area: Is your goal to retire mortgage-free? Do you have enough in super to fund the lifestyle you want?

On that last point (timing of retirement), have you thought about your own retirement timeline? If you haven’t made a plan yet, here’s a simple guide to get you started with retirement planning.

Mortgage versus super: what’s right for you?

As you can probably understand by now, both options have their pros and cons, and the “better” option isn’t the same for everyone.

The right choice for you depends on:

• your financial goals
• your risk tolerance
• personal and emotional factors.

So, run the numbers, weigh up the trade-offs, and choose the option that best supports your future and peace of mind.

Still unsure? You don’t have to choose just one. Some people split their surplus funds — for example, by putting 50% towards the mortgage and 50% into super. This can offer balance and diversification while still helping you move forward on both fronts.

At Toro Wealth, we’ve helped hundreds of Australians aged 50 to 70 find clarity around their circumstances and retirement goals. If you’re ready to fine-tune your strategy, our advisers can help you personalise the plan and make the most of your situation. To get started, book your initial consultation with us today.

FAQs on paying off your mortgage versus investing in super

Below, we answer some of the most common questions on this topic.

1. Should I pay off my mortgage or invest?

Whether you should pay off your mortgage or invest in super depends on your goals, financial position, and personal tolerance for risk.

Paying off your mortgage gives you a guaranteed return and peace of mind. On the flipside, investing through super may offer higher long-term returns and tax benefits, but it comes with more uncertainty.

Comparing the numbers and considering what matters most to you can help guide your decision.

2. Can I use my super to pay off my mortgage?

You can use your super to pay off your mortgage if you’re eligible to access it. This usually means meeting a condition of release, such as reaching your preservation age and retiring.

Until then, your super is preserved and can’t be accessed or used to directly pay off your mortgage while you’re still working.

3. Can I use my super to pay off debt?

You can use your super to pay off debt if you’re eligible to access it.

However, there are limited circumstances where you may be able to access your super early to repay debt — for example, in cases of severe financial hardship or on compassionate grounds. In these cases, strict conditions apply.

Otherwise, your super is preserved and can’t be accessed or used to directly pay off debt.

Sources:

• https://moneysmart.gov.au/home-loans/pay-off-your-mortgage-faster
• https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/early-access-to-super/when-you-can-access-your-super-early#ato-Accessduetoseverefinancialhardship