Mortgage-free is good but so is Superannuation

AUSTRALIANS have been working hard to pay down their home loans during 2014, with Reserve Bank figures showing home owners are, on average, around two years ahead with their mortgage.

That's great news but our focus on paying down debt could be compromising retirement nest eggs.

A survey by industry super fund REST, found that paying off a mortgage is the top financial priority for around 71 per cent of 35-49 year olds with a home loan.

Sure, it's a smart move to get ahead with debt while interest rates are low. However the same research showed that around half this age group plans to rely solely on employer contributions to fund their retirement - which I don't think will be enough. 

This is especially the case since the Government decision to delay the increase in employer super contributions to 12% until 2025. Remember too, there are limits to how much you can add to your super each year, so it's best to boost it over many years rather than hoping for a last minute catch-up prior to retirement.

If your budget can handle it, consider adding a little extra to your super. There's a handy online 'Super versus Mortgage' calculator on the government's MoneySmart website that lets you see how you can juggle growing super and reducing your home loan, together. It's worth a look.

Along with making contributions of your own to super, one option to grow your nest egg is by taking a closer look at the way the money is invested.

The vast majority of workers have their super in the balanced option of their fund, which is usually the default option. If you'd like a greater say in how your super is invested it's not necessary to start your own self-managed super fund. There is a new breed of professionally managed funds that give members more direct control of their investments.

There's now a reasonable selection of super that have trading platforms, which allow members to invest directly in shares, exchange traded funds and term deposits - all within their super.

It gives you more control and flexibility with your retirement savings, and because the fund trustee is still responsible for managing the fund, you won't get bogged down by paperwork.

These flexible options are often reasonably priced involving just a few extra dollars a year in fund fees. So there's the potential for plenty of gain for not much outlay if you want to take a more active and direct role in how your super is managed.

Having more of a say in the way your nest egg is invested could be the thing that triggers a healthy interest in your super, and that's the starting point to growing your honey pot of cash for the future. With your home loan paid off and a healthy super balance, retirement could look much brighter.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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