Super-sized question for future prosperity

One of life's little mysteries is whether it's better to pay down the mortgage or bump up the super, given you probably can't do both. Or in my case, neither.

The others can wait because this is one little mystery with an answer.

The younger and poorer you are, the better it is to pay down the mortgage.

So far, so good. But think twice about locking it all in at a low fixed rate, even though that'll save money straight away.

Gosh, what am I saying? Fix if your lender lets you make extra repayments, as does CUA. Otherwise, find a cheaper variable rate (hint: UBank is at 4.87 per cent) and use the saving to pay more off. That'll save you a lot more over time. Trust me, you'll be grateful later.

On incomes below $37,000, super will save you a miserable 4 per cent in tax on what you put in - it's tax-free while it's there for half a century, but who's counting?

As you get older and richer, the more compelling salary sacrificing into super becomes, helped by the fact it's less of a wait before you can collect your booty tax-free.

There, that covers the young, old, rich and poor.

OK, what about us? Well, as Kevin Rudd would say: "Guess what? It doesn't matter."

There are great tax breaks, even with the mortgage. The interest saved by paying more off, or, better still, sticking money in an offset account in case you need it later, can't be taxed.

But that's only the half of it. Paying down a 6 per cent loan is the same as earning between 7.5 per cent and 11 per cent from an investment before tax.

And you don't need me to point out that would require a whole lot of extra and pointless risk, though I will anyway.

Can super top that?

Yes, surprisingly - but only because it has longer to play with.

Salary sacrificing to super is taxed at a flat 15 per cent (or 30 per cent on incomes above $300,000), instead of 20.5 per cent to 46.5 per cent with Medicare. And the low rate of tax of 15 per cent on earnings in the fund is the black box behind super's zing. Give it long enough and super always grows over time because the lightly taxed earnings and interest are reinvested, continually expanding the size of the pool. So while paying off the mortgage feels right, super saves the most.

Extra repayments first have to come out of your take-home pay, but not so with salary sacrificing to super.

You can get more in - up to government decreed limits, that is - because your pay is taxed less.

This makes a huge difference in super's favour, though only you can know whether it's worth the downside of locking your money away for so long.

But in the top bracket, the advantage of salary sacrificing into super over paying off the mortgage can be a whopping 60 per cent upfront.

How can that be? Salary sacrificing $10,000 leaves $8500 in your super fund.

But paying off the mortgage comes from your after-tax pay, leaving $5300.

Still can't decide? A tipping point suggested by Suzanne Haddan of BFG Financial Services is having at least 50 per cent equity in your home before you even think about super.

Oh, and to be on the safe side, make sure you're ahead in your repayments.

Read David Potts in Weekend Money, with The Sunday Age every Sunday.

Twitter @money potts