As avid readers of stories about how much is needed for a comfortable life in retirement, we always see the rider on any figures, “providing you own your own home and have no mortgage.”

However in 2021, there were nearly 9.8 million households in Australia. Of these households, 67% were homeowners – but 35% still had a mortgage, higher than the 32% of households that owned their home outright.

The latest figures from the Australian Bureau of Statistics (ABS) show that the average mortgage size was  $577,000 in March 2022 — a slight decrease from the previous month ($585,000). NSW had the highest average mortgage at $711,000, followed by ACT homeowners with an average loan size of $606,000, and Victoria was third with the average mortgage of $590,000.

In short, more Australians are going into retirement with a mortgage – and that mortgage is increasingly higher. So, what if you are planning to stop work soon?

With interest rates rising, it may be advisable to start a ‘transition to retirement’ pension when you reach the preservation age, which is set at the age of 60 if the person is born after 30 June 1964.

For example, if John is working full-time has $1.2 million in super, is 60 years of age and has a mortgage of $300,000, he can start a ‘transition to retirement’ pension.

With a transition to retirement pension, anyone can withdraw between 4% and 10% of their account balance each financial year.

If John withdrew 10% before the end of this financial year of around $120,000 (10% of $1.2 million), and then made similar withdrawals in July 2023 and July 2024, he will have paid out his mortgage.

Remember, all payments made from your super after age 60 are tax free.

This is now an advantage because John is basically earning a guaranteed return of whatever his mortgage interest rate is. This could be anywhere between 5.5% and 7.5% per annum, depending on the lender and the arrangement.

Food for thought.