posted in: Investment Advice

Should I use super to pay off debt when I retire?

It’s a fair question, and one that comes up a lot as people get close to retirement. You’ve built a decent super balance, you’ve got some debt hanging around, and the temptation is to wipe the slate clean. The honest answer is that it depends, mostly on what kind of debt it is and what the money would have earned if you’d left it where it is.

In this article, I’ll walk through why the type of debt matters, a simple calculation that helps you make a decision, an example behind it, and why that same logic flips completely once the debt is cheap.

It Depends on the Type of Debt

Not all debt is created equal, and the first job is to work out what we’re actually dealing with. A mortgage behaves very differently from a high-interest personal loan.

Let’s assume a big debt is your mortgage. It might be worth paying that off. But it depends on what impact that’s going to have on your ability to generate an income off your super portfolio. One of the things with mortgages is that because you’re paying the interest and the principal, the repayment can actually be quite high. It can hit your cash flow quite a lot. So it may be something we consider.

That’s the nuance with a mortgage. The repayment is large because you’re chipping away at the loan itself, not just the interest, so clearing it can free up real cash flow. But pull too much out of super to do it and you can dent the very income you’re relying on to live.

A Simple Calculation

Now for the kind of debt that’s usually a clearer call.

Big debts might be personal loans or car loans where the interest rate’s pretty high.

When the rate is high, there’s a quick test you can run. Ethan is careful to frame this as something to consider rather than advice, but as a general calculation it’s a useful way to think.

Let’s say you’ve got a personal loan and the interest rate’s 17%. And let’s say the personal loan’s 10 grand. And you’ve got a super portfolio worth a million dollars and you’ve got access to it. Now, if you take 10 grand from the super portfolio to pay off the personal loan, do you think the super portfolio would have done a return of 17% and beaten the personal loan? If the answer’s no, and you can look at long-term performance to see what you think, it makes sense, because you’re going to get a better return by saving that 17% interest on the personal loan.

Sit with that for a second, because it reframes the whole thing. Paying off a 17% loan isn’t really spending your money, it’s earning a guaranteed 17% return on it. Unless you genuinely expect your portfolio to beat that, the maths points one way.

The Flip Side: When the Debt Is Cheap

Here’s where the calculation earns its keep, because flip the interest rate and you flip the answer.

Maybe you have HELP debt when you retire, been doing some studying later in life, and your interest rate is, I think, WPI or CPI whichever is lower, might be 2 or 3%. Well, is your portfolio going to get a better return than that? Potentially.

That’s the key contrast. A low-interest debt like a HELP loan is a different beast entirely. If clearing it only saves you 2 or 3% and your portfolio could reasonably do better, there’s a real argument for leaving the money invested and letting the cheap debt tick along. Same question, opposite answer, and the only thing that changed was the rate.

So, Should You Use Your Super to Pay Off Debt?

There’s no blanket rule here, and the right move sits in the gap between two numbers.

So it really depends on your situation, but it can be a good option.

Book a quick Wealth Planning Consultation and we’ll help you see where you stand, what’s possible, and how to make it happen.

• Stop feeling uncertain about your financial future
• You won’t need to make big sacrifices
• You won’t drown in paperwork or endless meetings

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About the Author: Ethan Stein is a financial planner with expertise in investment structuring, superannuation strategy, shares, property investment and other planning strategies. This article reflects general financial commentary only and does not constitute personal financial advice.

Financial Disclaimer: The information provided in this article is for general knowledge and informational purposes only and does not constitute financial advice. Individual circumstances vary significantly. It is essential to consult with a qualified and licensed financial planner before making investment decisions. Past performance of any asset class is not indicative of future results.