Should You Pay Off Your Mortgage or Invest More Before Retirement?

Anthony Starkins

13 November 2026

Copyright 2026 First Samuel Limited

As retirement approaches, deciding where to direct surplus income becomes increasingly important. Should you reduce your mortgage, contribute more to superannuation or build investments you can access outside super?

Each option serves a different purpose. Reducing debt lowers future expenses. Investing can build the capital that supports retirement income. Keeping money accessible gives you flexibility when circumstances change.

The decision requires more than comparing interest rates. It means understanding how your choices work together to support the retirement you want.

Start with the interest you can save

Repaying an owner-occupied mortgage reduces interest costs without exposing that money to investment-market movements. For a home loan where interest is not tax-deductible, the saving also carries no income-tax liability.

Consider a hypothetical mortgage rate of 6.5%. An additional $10,000 repayment would initially save approximately $650 in annual interest, assuming the rate and relevant loan balance remain unchanged.

An investment would need to deliver more than 6.5% after tax and fees to produce a greater financial benefit over the same period. That outcome is possible, but uncertain.

Comparing headline investment returns with your mortgage rate can therefore be misleading. What matters is the return you retain, the risk you accept and how long you can remain invested.

Superannuation changes the calculation

Contributing to super can offer a tax advantage before investment returns enter the picture.

For someone whose marginal income-tax rate is 32%, including Medicare levy, $1,000 of salary generally leaves $680 to put towards a mortgage. Salary-sacrificing that amount into super would generally leave $850 invested after 15% contributions tax.

That is a meaningful starting advantage. However, higher-income earners may face additional contributions tax under Division 293, and investment earnings in accumulation are generally taxed at up to 15%. The tax treatment of eligible retirement-phase earnings can be more favourable.¹

Contribution limits also matter. Employer contributions count towards your concessional contributions cap, so the full amount is not necessarily available for salary sacrifice. Eligible people may be able to use unused concessional caps from previous years.²

The contribution tax benefit alone does not settle the decision. Investment risk, access restrictions and your remaining years before retirement all affect the outcome.

Protect your flexibility

Money committed to super is generally preserved until you meet a condition of release. Turning 60 does not, by itself, provide unrestricted access in every circumstance; access is generally unrestricted from age 65.³

An offset account can provide a different balance: reducing mortgage interest while keeping cash available for emergencies, family commitments or a change in employment. Its value depends on the account’s terms, fees and associated loan pricing.⁴

For families approaching retirement, accessible cash deserves a deliberate place in the plan. A financially attractive strategy can become uncomfortable if it leaves too little available when needed.

Consider the effect on retirement income

Using super to clear a mortgage may reduce retirement expenses, but it also reduces the capital available to generate income.

Consider a couple approaching retirement with a mortgage, substantial super balances and savings outside super. Clearing the loan immediately could provide reassurance. Retaining some accessible savings could give them greater flexibility. Additional super contributions might improve their tax position.

The useful comparison is how each approach affects their spending capacity, liquidity and ability to manage a period of weaker investment returns.

That requires looking at the household as a whole, including both partners’ retirement dates, income sources and family commitments.

Build a plan for debt in retirement

Being mortgage-free can offer considerable peace of mind. It is a worthwhile goal for many households, but it should be assessed alongside the resources available to fund retirement.

A considered approach may combine debt reduction, super contributions and accessible savings. The balance should reflect your circumstances, rather than a universal rule.

The aim is to enter retirement with manageable commitments, sufficient income and the flexibility to respond when life changes.