By Philippa Billings, Chief Advice Officer, Otivo
More Australians are carrying a mortgage into their sixties than a generation ago, which makes this one of the sharper questions on the approach to retirement. It's tempting to treat it as pure arithmetic, compare the interest rate to the return you could earn elsewhere and let the higher number win. But the honest version of this decision is as much about certainty as it is about maths. Here's the trade-off worth weighing.
Quick answer
Whether to pay off your mortgage before retiring is a trade-off between certainty and flexibility, not a single right answer. Clearing the debt removes a fixed cost and the risk that comes with it, while keeping money in super or savings preserves flexibility and potential growth. As at July 2026, the family home is generally exempt from the Age Pension assets test, which can also shape the decision.
Why isn't this just a numbers question?
Because the numbers only capture part of what's at stake. On paper, if your expected investment return is higher than your mortgage rate, keeping the debt and investing looks better. But retirement changes the weighting. Entering it without a mortgage removes a large, non-negotiable monthly cost at exactly the point your income becomes finite, and that certainty has real value that a spreadsheet struggles to price. For many people the appeal of a debt-free retirement is as much about sleeping well as about optimising a return.
What are the arguments for paying it off first?
The case rests on certainty and risk. A cleared mortgage means one less fixed expense to fund from a fixed retirement income, and it removes exposure to interest rate rises at a stage when you can't easily earn more to absorb them. There's also a behavioural benefit, a guaranteed saving equal to the interest you're no longer paying, with none of the uncertainty of investment markets. For someone entering retirement with a modest income buffer, removing the debt can make the whole plan more resilient.
What are the arguments for keeping money flexible instead?
The other side values access and growth. Money directed into super rather than the mortgage may benefit from concessional tax treatment and long-term returns, and money kept in accessible savings stays available for emergencies rather than being locked into the house. Once you've made extra repayments, getting that money back out generally means redrawing or refinancing, which isn't always simple in retirement. Flexibility can matter as much as being debt-free, particularly if your cash reserves are thin.
How does the Age Pension fit into this?
It's a factor worth understanding generally. The family home is normally exempt from the Age Pension assets test, whereas super and other financial assets are counted. That means the way you hold your wealth, in the home versus in super or savings, can influence Age Pension entitlements, sometimes in ways that aren't obvious. Because the thresholds and rules are detailed and change over time, Services Australia is the place to check how they apply to a given situation.
Frequently asked questions
Is it better to pay off my mortgage or add to super before retiring?
There's no universal answer. Paying down the mortgage offers a certain, risk-free saving and a debt-free retirement, while adding to super offers concessional tax treatment and potential growth but locks the money away. The right balance depends on your rate, your timeframe and how much certainty you want.
Does paying off my mortgage affect my Age Pension?
It can. The home is generally exempt from the assets test while super and savings are counted, so shifting money from assessable assets into the home may affect entitlements. The detail is set by Services Australia and depends on your circumstances.
Should I use my super to pay off my mortgage at retirement?
Some people use a super lump sum to clear remaining debt at retirement, but it reduces the balance left to generate income. Whether it makes sense depends on the size of the debt, your other income and how long your super needs to last.
Where to from here
This is a decision where the right answer is personal, not universal. Otivo, a licensed Australian financial advice platform holding AFSL and Australian Credit Licence No. 485665, offers a retirement planning module that shows how carrying or clearing debt could shape your retirement income, based on your assets, age, spending and goals. It helps you weigh certainty against flexibility with your own numbers.
Sources
- Services Australia — Age Pension assets test and the family home — servicesaustralia.gov.au
- ASIC MoneySmart — paying off your mortgage and retirement — moneysmart.gov.au
Disclaimer
The information in this communication is current as at July 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.