Mortgage or Super? Where should your next $500 go?
And, in the Nine Newspapers this weekend "Why your bank might be overcharging you interest – and how to check"
In this edition: It’s a juicy one
Feature: Mortgage or Super? Where should your next $500 go?
From Bec’s Desk: On the Ghan…
The Age and Sydney Morning Herald: Why your bank might be overcharging you interest – and how to check
Prime Time: ASIC warning: your offset account might not be offsetting at all
Know someone who’s starting to think seriously about retirement?
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Mortgage or Super? Where should your next $500 go?
One of the nicest financial problems you can have is finding yourself with money left over at the end of the month - especially as you’re approaching retirement.
For years, it probably didn’t feel like that was ever going to happen. There was always something demanding your attention - the mortgage, school fees, the savings account funding the family holiday, replacing the car or paying for unexpected repairs at home. Life has a habit of soaking up whatever money we earn.
Then, quite often, in the run up to retirement, something changes.
The mortgage becomes a little smaller than it used to be. The children become more independent and start carrying themselves forward. Your income is often the highest it’s ever been. And retirement, which once felt a long way away, suddenly feels close enough to reach out and touch.
It’s often around this point that people ask me a question that sounds incredibly simple.
“I’ve got an extra $500 a month. Where should it go? Mortgage or Super?”
At first glance, it’s a series of question about investments and returns. Should I pay down the mortgage? Should I contribute more to super? Should I invest outside super?
But I don’t think that’s actually what people are trying to work out. In fact, I think they’re trying to answer a much bigger question.
‘How do I give myself the most choices over the next ten years?’
Because that’s really what retirement planning is about. It’s not really about accumulating the biggest possible super balance or dying with the smallest mortgage. It’s not even about squeezing every last tax benefit out of the government.
It’s really about creating choices - so that when you hit the crossroads of life, you have options, and you’re not forced down a path that you’re unhappy with.
The interesting thing is that each of those three options buys you something different.
Paying down your mortgage buys certainty of your housing, your local community and your cost of living.
Contributing to super buys tax efficient savings, a good record of getting investment returns and, potentially, building of more wealth.
Investing outside super buys you flexibility and potentially the ability to step away from working full time before you reach the age when you can access your superannuation.
None of those things is automatically better than the others. Their value depends entirely on what you’re trying to achieve.
Imagine two people, both aged 57, both with an extra $500 a month to save.
The first wants nothing more than to own their home outright before they retire. They’ve never liked debt at all. The idea of entering retirement with a mortgage keeps them awake at night. For them, directing every spare dollar to the mortgage might be exactly the right decision. Every repayment reduces the interest they pay, shortens the loan and gives them a little more confidence about their future.
The second person has a different goal. They’re planning to retire at 62 and still have plenty of room to contribute to super in their concessional contributions cap each year. Rather than paying the mortgage down immediately, they decide to salary sacrifice into super while they’re still working. Thanks to the tax concessions available inside super, they accumulate more than they would have by investing the same amount after tax. When they retire, they use part of their super to clear the remaining mortgage.
Neither strategy is right and neither strategy is wrong. They’re simply solving different problems.
Then there’s a third person. She’s 56 and dreams of finishing work at 58. She knows she won’t be able to access her super for a couple of years, so paying extra into super doesn’t help her immediate goal of funding her pre-retirement years. What she needs is money she can actually use between the day she finishes work and the day she can access her super.
For her, investing outside super isn’t the most tax-effective choice. It’s the most useful choice - for her goals.
That’s why I’ve become increasingly uncomfortable with the idea that there’s a universal answer to this question that is driven by investment returns alone. I think the better question is:
‘What job does my next $500 need to do?’
Let's see what happens to the same $500 a month under each strategy so your choice can be anchored in good financial sense too.
A reminder before you read on: I’m not going to tell you where your next $500 should go.
What I will do is explain how each option works, who it tends to suit, and the trade-offs involved. Good retirement planning isn’t about finding the “best” strategy - it’s about finding the strategy that’s best for you.
Strategy One: Reduce your mortgage
Suppose you have a mortgage charging 6.5% interest and decide to direct your extra $500 a month towards it.
Over the next five years you’ll contribute $30,000 of your own money. Assuming interest rates stay around today’s levels, you’ll also avoid paying roughly another $5,000 in interest. In total, you’ll reduce your mortgage by around $35,000. There’s no market risk of getting that outcome because it is just capital plus interest.
There’s another benefit that’s harder to measure here. Every extra repayment reduces your future commitments to pay for housing. If your circumstances change or you decide to retire earlier than expected, a smaller mortgage gives you more breathing room.
This is why many Australians love paying down their mortgage first. The return is predictable, the risk is low and the emotional reward of watching your mortgage shrink shouldn’t be underestimated.
Strategy Two: Build your super first
Now let’s use exactly the same $500 differently. Instead of making extra mortgage repayments, suppose you salary sacrifice enough into super so your take-home pay still only falls by about $500 a month.
If you’re earning around $100,000 a year, that means around $735 is contributed into super before tax each month. After the 15% contributions tax, about $625 is invested.
Assuming those contributions earn an average return of 7% a year over the next five years, you’d finish with around $45,000 in super. That’s roughly $10,000 more than directing the same $500 to your mortgage.
So why the difference? It isn’t because super somehow earns better investment returns than your mortgage saves you. It’s chiefly because the tax system is helping you save more.
By contributing before tax through salary sacrifice, the same reduction in your take-home pay allows you to invest around 25% more money each month than if you were investing after tax. Even after contributions tax is deducted, you’re still investing more than you could outside super. Those larger contributions then have five years to grow.
Of course, nothing comes for free. Unlike extra mortgage repayments, your super balance will rise and fall with investment markets. And unless you’ve met a condition of release, you can’t simply access the money if your plans change.
That’s why this strategy tends to suit people who are only a few years away from retirement and are confident they won’t need the money beforehand.
It also raises an interesting question that many Australians never ask.
‘Could I use super later to help pay off my mortgage, rather than paying off my mortgage before building my super?’
For the right person, the answer may well be ‘yes’.
Strategy Three: Buy yourself flexibility
Not everyone is trying to maximise their retirement savings. For some people, the priority is having money they can access before or during retirement if life doesn’t quite go to plan.
Perhaps you’d like the option of reducing your working hours a little earlier than expected. Perhaps you want to help your children financially, renovate your home before retirement, care for ageing parents, or simply know there’s a pool of money available if something unexpected happens.
Whatever the reason, that changes the job your next 500 dollars needs to do. In this situation, investing outside super might make a lot more sense.
Assuming the same $500 a month is invested and earns an average return of 7% a year, you’d accumulate around $36,000 over five years before tax, investment fees and any capital gains tax that may eventually apply.
That’s certainly less than the super strategy. But it buys you something neither your mortgage nor your super can - access to the money earlier to fund your lifestyle. Your money isn’t locked away. So, if your plans change, your savings can change with them.
Will you probably pay more tax than if you’d invested through super? Yes.
Will you potentially end up with a smaller investment balance? Probably.
But that’s because you aren’t trying to maximise tax efficiency. You’re choosing flexibility and sometimes that’s exactly the right trade-off.
Want to read more, I have two books - How to Have an Epic Retirement and if you’re not ready for retirement, Prime Time: 27 Lessons for the New Midlife.
I’m writing this on the plane home from Adelaide, having just done the 4 day, 3 night journey from Darwin to Adelaide on The Ghan Expedition.
My daughter Paris and I were guests of Journey Beyond, and I have to say, it was a remarkable experience. Four days and three nights sleeping in a lovely cabin on the train, eating chef-prepared meals that rivalled many top tier restaurants, enjoying a glass (or two) of South Australian wine as the Australian landscape rolled by, and stepping off each day to explore parts of the outback that most Australians never get to see.
But what surprised me most wasn’t the the food or the train - it was the people and the sense of camraderie on our journey.
There’s something about spending four days together that breaks down barriers and makes us friends. By the second day, complete strangers were sharing breakfast, swapping travel stories over dinner and sitting together over a drink at the end of the day. We met people from all walks of life. Most were Australians taking the trip they’d been talking about for years, or pairs and groups of long-time friends travelling together. A couple of mother-daughters and a couple of families - but mainly Prime Timers and Epic Retirees.
As someone who spends a lot of time thinking and writing about retirement, I couldn’t help but notice something else …
Many of the conversations eventually drifted to life after work and the lives people were building or had built. People talked about why they’d chosen to take the trip now before retiting, or what they’d learnt since retiring, and the adventures they hoped to have next. Almost without exception, they said some version of the same thing - it was awesome - and they are so glad they got out there and did it. 😉. I’ll be doing a full episode on the adventure in the Prime Time podcast in the next couple of weeks - keep an eye out.
In other stuff worth talking about:
It’s week 2 of the HESTA 6-Week Epic Retirement course and it’s going well. Our first live Q&A event is just days away - always the most fun part.
And our earlybird deal for the How to Have an Epic Retirement Flagship Course will close on Monday - so get your booking in, because tickets will jump from $390 to $525 when they do. More than 300 people have already booked - so you’re in great company.
And lastly, this week I was privelidged to interview Sarah Court, the new ASIC Chair to discuss the issues with offset accounts that ASIC is warning consumers to look for. Have a listen to the podcast or read about it in my newspaper column.
And that’s it - have a ripper Sunday!
Cheers - Bec
Author, podcast host, columnist, retirement educator, and guest speaker
Why your bank might be overcharging you interest – and how to check
Have you got an offset account, and if so, have you ever checked it’s working properly to reduce the interest paid on your home loan? Sounds like something most people would assume the bank knows how to get right, right?
Well, according to a report by ASIC that was published this week, it’s now something we should all be worrying about, and checking on promptly.
The Australian Securities and Investments Commission has reviewed the practices of eight banks, looking at more than 200,000 individual home loans to check whether the offset accounts in place were delivering the savings that were promised, and the commission has been unimpressed by the mess.
Its report shows that, in the period from September 2023 to August 2025, banks paid out compensation of more than $55 million to customers for cases where offset accounts were not offsetting correctly – and that was chiefly only to people who discovered a problem and asked about it.
Fifty-five million dollars in compensation is what banks have so far admitted to getting wrong – but ASIC says the real number could be a lot bigger. Several banks couldn’t even reliably tell them who had asked for an offset account in the first place, let alone who had lost money on one that hadn’t been set up or linked correctly, or even set up at all.
This article continues… It is published in The Age and Sydney Morning Herald on Saturday 1st Aug 2026. Read the whole article here, without a paywall.
ASIC warning: your offset account might not be offsetting at all
Offset accounts are supposed to be one of the simplest products in banking. Put money in, link it to your home loan and pay less interest. ASIC’s latest investigation suggests you might need to open your statements and check if your offset account is in fact working like that.
This week on the podcast I sat down with the new ASIC Chair Sarah Court to unpack one of the most significant banking reports released this year. This week, ASIC have announced that they have dived deep into how offset accounts are working, and have concern that many are not working as they are supposed to.
ASIC’s investigation found banks have already paid more than $55 million in compensation over two years after offset accounts failed to reduce customers’ home loan interest as promised. Even more concerning, the regulator says the true scale of the problem may be much larger because some banks couldn’t reliably identify customers who had requested an offset account in the first place.
We talk through how offset accounts are supposed to work, why so many failures have occurred, why they’re often difficult for customers to detect, and the simple checks every mortgage holder should make - particularly if you’ve refinanced, switched loan products or come off a fixed-rate loan in recent years (and even if you haven’t).
LISTEN TO THIS EPISODE OF THE PODCAST HERE: