bondipom

Indeed the pension system was set up in a era of an expanding workforce providing for a smaller retirement population. It used to work very well. A lot of people are in for a rude shock at retirement. I wonder what will hapen when the baby boomers start retiring and flogging their properties to live up the Sunshine Coast. This has started but the post war baby boomers hit 60 in a year.

The other part of the reality of high house prices is that it prices out lower paid key workers, especially teachers, nurses etc. Not your fault but something the government has to deal with and people should not be upset to see state intervention.

Megalania

The theory is that more skilled workers - "Human Capital" - adds to the economic well being of all in a fairish society.

Vast swathes of people nearing retrement are indeed due for a very rude shock - their effective retirement ages will have to extend way beyond the 65 years of generations of yore - they will be forced to keep working.

In the past people dropped off the twig within a hand full of years after reaching 65. Now retirees have 2 to 4 hand fulls of years to provide for in retirement.

Badge

On having a low mortgage, of course, you need to divert all your spare cash to paying off your mortgage soon, as it WILL cost you, but cashflow is king every where especially when kids are around.

Sometimes I feel it is better to sort your life out over say 10 years, have less stress, then overpay your mortgage, in the "2nd trimester", in middle age, after wage inflation makes it easier. I feel that if I wait 10-15 years, then my mortgage will be so low, I wonder why I eaked by for 10 years not doing anything because the house was no 1.

You won't save any more money, but you will still finish paying earlier and have less cash flow worries. Have to do some models.

Debt doesn't kill; lack of ability to service debt kills. Cashflow is king.

badge

Megalania

Under todays tax rules, one should aim to pay off the mortgage at around 50. The amount of employer sponsored superannuation your employer can claim as a tax deduction for you jumps up dramatically at age 50. They are more likely to allow you to salary sacrifice to the extent that they can claim the tax deduction.

Age Deduct Limit
00. 13,934.00
35. 38,702.00
50. 95,980.00

Between 50 and retirement you should be more or less free of child raising expenses and be able to maximize the tax advantages of salary sacrificing - and motivated to do so.

hevs

Megs, excuse my divvyness but are you saying pay off your mortgage no earlier than 50, then use the last 10 or so years of employment to put chunks aside from your salary for retirement??

Simone

I think no LATER than 50.
And then you can concentrate on the super?

That was what I was planning, though in a shorter term. Pay off mortgage, then after that put more money in superannuation.(and maybe invest in property or otherwise) Didn't know about those age differences yet though, thanks Megs, mustn't have got to that part yet in the book I'm reading... ehhh, was reading

Megalania

No. If you have a secure job, earn pots and live way below your means, pay off the mortgage as quickly as your cashflow allows whilst keeping a reserve pot comfortably stocked.

Most are not in that situation. Leaving paying off the mortgage until just before or after retirement leaves you open to the risk of becoming unemployed with a negative cashflow and a mortgage to meet. 50 seems to be an age at which lots of people's incomes drop and at which a few start to rake it in.

I suggest the "pay off the mortgage by 50" as a reasonable starting point only.

Remember a 7% mortgage paid from after a marginal tax rate of ~50% is actually 14% before tax. You want to be paid 7% (and taxed at 15% on that in super) rather than paying 14%.

brisnick

crap. if i want to pay off a 30 year mortgage i'm in BIG trouble......

Simone

Maybe you're in big trouble because you have a 30 year mortgage?

brisnick

i don't have a mortgage, but i wouldn't be able to afford to repay anything if it was less than 30 years! i'd need more than half my annual wage committed to a mortgage to pay off in 30 years. damn house prices for being so high!

hevs

OK, i understood all bar the last paragraph, thanks

Megalania

After 50, especially, being paid interest is better than paying interest is what it means. Plenty of exceptions to that - like paying interest on a business loan where the business returns are higher than the interest paid. And it is better to be able to deduct the interest before tax is paid on income (as in business) than paying interest on money in aftre tax is paid on income (as per a salary).

hevs

AAAhhhaaa!! You'll make a clever cloggs of me yet megs. Thank you. Its crystal now xxx

ozzieeagle

At times of house booms, wouldn't paying a mortgage, or even two, be more rewarding than putting the same amount of money into super. I realise we are not in house boom times right now, but that situation could almost certainly change in 5 years again ?

Btw that house I looked at for investment, went for more than 50 pct more than my top price, I was well suprised about that.

Megalania

There is generally a boom of one sort or another going on at all times. Put your money on coal miners shares last year and you'd now have 4 times your money. Put it on now, could later have 1/4 times your money.

When you think real estate looks good, buy some listed property shares with your super money? Vastly more liquid than the real real estate - buy in / sell out in minutes and no renovation.

But all that is play dough - money you have after investing sufficiently conservatively or diversely to be reasonably sure you have provided for your retirement.