A retiree’s dilemma: Pay off the mortgage or preserve super?

The answer depends on mortgage interest rates, superannuation investment growth, and Centrelink entitlements. The following discussion and examples assume retirees use a simple account-based pension (the most common type of super product for retirement).

If a superannuation investment can be expected to grow at a higher rate than a mortgage debt, keeping the balance rather than using it to pay down the debt may be a viable strategy.

For example, the five-year average standard variable mortgage interest rate was 4.06% to June 2024, while the average return for a growth option (61–80% growth assets) in a super pension was 7% over the same period. A retiree who kept their super investment in a growth option during that time rather than paying down their debt managed to earn approximately 3% more on their investment than they paid in mortgage interest.

The difficulty is uncertainty. Shy of access to a time machine, there is no way to predict whether an investment will generate a higher return than the interest charged on a mortgage.

In addition, retirees often choose more conservatively invested options for their super that have lower long-term returns but offer less variability from year to year. For this reason alone, many will prefer to repay the debt, accepting the risk that super returns may have left them better off in exchange for the peace of mind that comes with a fully paid off home.

If a retiree does choose to keep their mortgage but later changes their mind, they are generally able to withdraw a lump sum from super at any time to repay the debt. However, some retirement income products restrict access to lump sums, so it is critical to understand the features of the product that is selected.

Importantly, the potential gap in mortgage rates and investment returns is not the only consideration for many retirees.

A person who is likely to be eligible for the Age Pension must work through the impact that repaying their mortgage could have on their entitlements.

The home is not assessed in Centrelink’s means tests and an outstanding home mortgage can’t be used to reduce the value of assets that are assessable. This means repaying mortgage debt reduces the amount counted in means testing and can improve the rate of Age Pension that is payable.

Examples: Mortgage and Age Pension

Calculations by author using SuperGuide’s Age Pension calculator based on Age Pension rates and thresholds current on 2 March 2025.

Selling the home

If neither using super to repay debt or continuing to hold a mortgage while retired is appealing, a home sale could be an option.

Renting in retirement is undesirable for most people because of cost, insecurity (rent increases and having to move at short notice), and how renters are assessed in Age Pension means tests.

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If renting is off the table, selling the home at retirement to repay the mortgage will mean purchasing a home with the net sale proceeds to live as a debt-free homeowner.

The benefit of paying off the mortgage without spending super to do it is clear; more money available to generate your income for retirement, giving you a better lifestyle, helping your savings last longer, or both.

Perhaps this will mean a seachange or treechange away from our bigger cities to find more affordable housing, or simply a move to a smaller property. Some may find the option of a granny flat arrangement appealing since it solves the problem of finding a property and allows families to stay close together at the same time.

If the sale of your home is likely, be sure to consider transaction costs such as real estate agent fees and stamp duty.

The bottom line

Retiring with a mortgage doesn’t have to spell disaster for your post-work life, but careful attention is required to follow the path that most suits you. Be sure to consider whether growth in your super account is likely to outweigh mortgage interest, if repaying the mortgage could improve your Age Pension, and if selling your home could be a viable alternative.

A decision like this can be difficult to make alone, particularly if you’re considering a more complex option, such as a granny flat. So, be sure to seek help from a licensed financial adviser for personal recommendations if required.