Should I pay off all my mortgage, or leave a little bit in?

My husband and I are on track to pay off our mortgage by the end of 2025. Some friends, however, suggest it might be wise to leave a small amount in the mortgage account as a financial cushion for emergencies. Are there benefits to keeping some money in the mortgage, and if so, how much would you advise? Since my husband is over 65, we could also access his superannuation if needed. Any advice on this would be much appreciated.

I think it’s a good idea to keep a loan facility open because you never know when an emergency might arise, possibly involving family members. You just need to find out what the fees are, but as long as they’re reasonable, I don’t see any downside.

Still having a small mortgage may not feel like you’re truly ‘free’, but it can be a boon in case of emergencies.Credit: Simon Letch

My partner is in an aged care facility, which initially required a $510,000 refundable deposit. Since then, this facility has closed, and she had to move to a new one, which required only a $350,000 deposit. As a result, she now has an extra $160,000 in her bank account. Could you please clarify whether this additional money will affect her aged pension and aged care fees, as determined by Services Australia? If it does have an impact, is there any way to move this money, such as into a trust account, to avoid consequences and keep it as a backup in case a future refundable deposit is higher than the current $350,000?

Aged care expert Rachel Lane explains that the money in your partner’s bank account will be assessed for both of your pensions and her aged care fees. It will count as an asset and be deemed to earn income.

While $160,000 alone may not impact your pensions, it depends on your total assets. For aged care means testing, the Refundable Accommodation Deposit (RAD) is also assessable, so the only difference with the money in the bank is the income it’s deemed to generate.

If your total assets exceed the pension asset test threshold of $470,000 for a homeowner couple, having the $160,000 in the bank rather than the RAD could reduce your pensions by $12,480 a year.

Strategies to reduce assessable assets include gifting within allowed limits, prepaying funeral expenses, purchasing funeral bonds (up to $15,000 each), or buying an income stream with an asset test exemption. You should seek specialist advice, as each option has pros and cons.

I’m 77 and currently have about $275,000 in a superannuation account. I am required to take a pension of about $650 a fortnight, which means I receive about $150 less per fortnight than the full pension. If I were to stop receiving a pension from this account, I would be eligible for almost the full pension, as I have minimal other assets. However, this would mean paying tax on any earnings from my account. I’ve read that super funds typically pay less than 15 per cent tax. Even at 15 per cent, would I be better off making this change?

I don’t think you understand how Centrelink’s assessment process works. Once you reach pension age, which you already have, your superannuation balance (irrespective of whether in accumulation or pension phase) is counted in the assets test and deemed for the income test.

The same process applies to money held in cash. It’s ultimately your decision whether to keep the money in super or withdraw it. Based on what you’ve shared, you seem to be in a tax-free zone whether the funds stay in super or are taken out.

I am over 60 years of age, on a base salary of $100,000, and sacrifice $20,000 of that into my super fund. Is that $20,000 tax-deductible for me?

Salary sacrifice occurs when part of your superannuation is paid by your employer from your gross salary. Many employers allow you to opt into this arrangement. Alternatively, you can make a personal after-tax contribution and claim a tax deduction.

However, if your base salary is $100,000, your employer should be contributing $11,500 to your super. Since the standard concessional contribution limit is $30,000 (including employer contributions), you have $18,500 left each year for salary sacrifice or personal deductible contributions.

I suggest discussing this with your employer to ensure your arrangement is optimised without breaching the contribution cap.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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