Why paying off debt could be costing you

Paying off debt is a good goal to have. But doing it to the exclusion of an investment plan will most likely see you well short of where you want to be in retirement.

It takes significant time to build substantial wealth, 20 - 30 years. So focusing just on clearing debt and hoping you can somehow pull it together in the last 5-10 years of your working life is going to see you come up well short.

But according to a new survey by REST Industry Super Australians are doing just that.

Only 15% of 35 to 49 year olds are prioritising long-term savings, while property debt is the dominant priority for this age group.REST Industry Super’s latest whitepaper, What’s Next, surveyed 1,000 Australians aged between 35 to 49 year on the state of their financial health.

Of the respondents, 71% are paying off a mortgage, which is their main financial aim. Long-term savings are the fourth highest priority, after paying off debt and short-term savings. Short-term savings, including holidays and education costs, was the top priority for those without mortgages.

REST CEO Damian Hill said that it’s encouraging to see this group take control of their immediate finances, including getting their mortgage under control. However, he said that it seems to be to the detriment of planning for the future.

“We know that relying solely on employer super contributions is unlikely to support the kind of lifestyle most Australians want in retirement, so it’s important to prioritise saving for post-work life as well,” Hill said.

“This is even more the case since the recent government announcement to delay the increase in the superannuation guarantee contribution rate to 12% until 2025.”

The 8% of respondents who owned their home outright prioritised retirement as their most important goal.

“Focusing on paying off the house means that over half (51%) of Australians are relying solely on the compulsory super system to save for their retirement – at the very stage of life when they are likely to be in the best position to make additional contributions on top of what their employer is paying,” Hill said.

“Planning for retirement doesn’t mean your mortgage has to suffer, but it is important to balance your financial priorities to ensure long-term savings aren’t being forgotten in the face of more immediate needs.”

However, some 6% of the respondents were saving for property in different ways. Of this small portion, some were using property investments, including their home, as a retirement plan.