If you are over fifty and still have a mortgage, keep reading we might just save you thousands.

As advisers we frequently meet people who are over fifty and not comfortable with the size of their home loan or other debts.  There are numerous reasons why later in life you might have higher debts than you would like.  It might be that marriage breakdown, business difficulties or even health issues have required large unplanned outlays that have delayed debt reduction or added new debt.  These events are sometimes just the reality of life, however, there is a way to pay down that debt faster if you meet certain criteria.

Whilst the purpose of Super is to provide income in retirement, high debt levels can be crippling to your lifestyle and also your ability to save and plan for the future.  Eliminating debt faster will save you money and help you plan and achieve your goals by removing the burden of debt from around your neck.  Whilst its common sense that eliminating debt will save interest, often overlooked is the fact that this is a guaranteed saving, unlike many investment returns that move up and down with markets.

By commencing a Transition to Retirement Pension (TRP) we can help you access ten percent of your superannuation balance each financial year.  This can be paid to you as a single annual lump sum.  This lump sum pension payment can be used to reduce debt and the process can be repeated annually.  Depending on the timing, it is sometimes possible to make three lump sum reductions in as little as fourteen months.

You have to be fifty-five to commence a TRP but if you are fifty plus, maximising super contributions now will make this strategy more effective once you can commence a TRP.

The strategy can be enhanced if you are able to make significant salary sacrifice contributions into super.  If you are over fifty you may make salary sacrifice and SG (employer) contributions of up to $35,000 per annum.  These are taxed at fifteen percent rather than your personal tax rate.  These contributions along with growth of the fund, form part of the account balance on which the annual pension payment is calculated.  So, if you contribute $35,000 that’s an extra $3,500 you can receive as a pension payment / debt reduction, which has been taxed at only fifteen percent.

Income tax is payable on the pension payment between the ages of fifty-five and sixty however a fifteen percent tax rebate is also applicable. The pension payments are tax free once you are over sixty. When advising clients on implementing this strategy detailed calculations and cash flow modelling are undertaken to ensure any tax payable is offset by the interest savings and the overall outcome is the best outcome given your specific circumstances.

Of course the more debt you pay off, the less interest accumulates on the remaining debt. This means your regular repayments have a greater effect on reducing the outstanding balance. Each annual pension payment applied to the debt further enhances this virtuous cycle.

We have advised many clients who have successfully paid off their debts much faster than anticipated and saved thousands in bank interest which is now helping them achieve their long term goals and dreams.  The truly valuable aspect of this advice is that once you are debt free, it is much easier to focus on planning your goals and rebuilding your super to help you experience your goals and dreams.

This is not personal advice and has not taken your individual circumstances into account, everybody’s circumstances are different so it is vital that you obtain personalised advice.

If you think we might be able to help you save thousands, please call and speak to one of our advisers.