One of the most popular questions we are asked by our clients is whether it’s best to pay off their mortgage first or salary sacrifice money into their super fund – or can they do both? The answer to this question is never the same considering that everyone’s needs are completely different, but we thought we’d provide an explanation with some examples to give you an idea of how both options work.

It’s not really a sacrifice

Salary sacrifice means arranging for your employer to pay part of your salary into superannuation instead of paying it to you in cash. It can be tax-effective because most of the personal income tax rates are higher than the 15% superannuation tax rate.

To explain, the table shows the difference for three people who invested $10,000. The top line is for someone on the highest tax rate. They would have $3,200 extra invested – a whopping 60% more by using salary sacrifice. The other lines show people on lower tax rates – you can see they both will have more invested by “sacrificing”.

Income Marginal tax rate Invested after tax Invested by salary sacrifice Difference
$190,000 47.00% $5,300 $8,500 $3,200 60%
$95,000 39.00% $6,100 $8,500 $2,400 39%
$60,000 34.50% $6,550 $8,500 $1,950 30%


Salary sacrifice is made even more attractive as superannuation payouts for people aged 60 and over are tax-free.

If your employer allows salary sacrificing, talk to us before implementing an arrangement. You need to be sure you will still have sufficient income for everyday living; you won’t need that money before you retire; and other employment conditions are not adversely affected.

Should I pay off the mortgage or pay more into super?

The easiest way to show the difference is by using a case study.

Consider Christine who earns $100,000 a year. She is aged 50 and plans to retire at age 60. Christine is worried about paying off her $175,000 mortgage. The mortgage interest rate is 4.5% and she is paying $21,764 a year so it will be paid off in ten years.

An alternative strategy is to pay interest only on the loan and salary sacrifice into superannuation so her disposable income remains the same. Christine’s accumulation in super will grow faster and she can pay the loan off when she retires. The table compares the cash flows of the two strategies.


Pay mortgage Maximise super
Income $100,000 $100,000
Salary sacrifice $0 $15,500
Taxable income $100,000 $84,500
Tax and Medicare $26,117 $20,169
After tax income $73,883 $64,331
Mortgage payments $21,764 $7,875
Disposable income $52,119 $56,456


With her current strategy she pays tax of $26,117 and has $52,119 left over after paying the mortgage.

Christine has an upper limit of $25,000 on the amount of concessional contributions she can make into super. This includes the total of her employer’s Superannuation Guarantee contributions and any salary sacrifice amount.

Assuming Christine’s SG contributions are $9,500pa and she sacrifices an additional $15,500 from her salary, which is within the maximum allowed amount, and pays interest only on the mortgage, this is what she will achieve:

  • She will have $4,337 more disposable income and will pay $5,948 less tax.
  • She will have $15,500 extra per year going into superannuation.
  • The super fund will pay 15% tax so $13,175 will be invested. If the fund earns 7.5% per year after tax, her super will grow by an additional $213,000 in 10 years.
  • When Christine retires at age 60 she can cash out $175,000 from her super tax-free to pay off the loan and be more than $38,000 ahead of her current strategy.

It is important to note that the outcomes for different people will vary, and will depend on such factors as interest rates and investment returns