Taking stock - making sure your retirement is well funded

Researchers found that 90 per cent of people believe they will still be paying off a mortgage when they retire and one in three are not confident their superannuation will provide for an adequate lifestyle.

The good news is that more than 50 per cent of people who were surveyed said they were prepared to change their lifestyle now to better fund their retirement.

The solution is to set some concrete goals and then adopt strategies to make them happen.

The best map in the world is useless if you don't know where you are, so your first job is to find out how much you owe now and what the balance will be when you want to retire.

Then find out how long it will take you to pay it off at your current rate, using the calculator on my website - it's the perfect tool for this.

For example, if you are 50, your loan is $400,000, and you are paying 6 per cent, with monthly payments of $2800, the calculator tells you it will take 21 years to repay the loan - you will pay interest totalling $303,000, and at age 65 you will still owe $145,000.

A way to pay off your home in 15 years and retire mortgage-free, is to make repayments of $3375 a month, which will save over $100,000 in interest over the life of your loan.

That's right: by increasing your payments by $132 a week ($6864 a year) you can be debt-free at 65.

Now think about superannuation. The major factors determining how much you will have when you retire are the rate you can earn on your superannuation, and the number of years you can work.

A better rate and extra time turbocharge the compounding effect.

You can use the super contributions calculator on my website to input different lengths of time and rates of return to explore the differences.

Rob and Kerry are 50, each earn $95,000 a year and each have $300,000 in superannuation.

Rob is disinterested in super and has been achieving a return of 4 per cent - he wants to quit work at 65.

Kerry understands compounding and has moved her funds into higher performing investment options; she is achieving 8 per cent on hers. She's also prepared to work for as long as it takes.

At age 65, Rob's balance may be $780,000 and Kerry's $1.3 million - the difference is solely because of Kerry's higher rate of return.

If Kerry also works for five more years her super will grow to $2 million.

But remember there are other strategies for retirement. Everybody is allowed to make $27,500 a year in tax-deductible super contributions (including the employer contribution).

If you're earning $100,000 a year now, your employer should be putting in $11,000 a year, so you may make up to $16,500 in extra, tax-deductible contributions.

Your best strategy may be to leave your home loan payments unchanged and maximise your tax-deductible contributions to super.

This is because home loan payments come from after tax-dollars, but superannuation contributions come from pre-tax dollars.

If you're in the 34.5 per cent tax bracket, for the same cost to yourself ($10,480 a year pre-tax) you could put $6864 (after tax at your marginal rate) towards paying off your mortgage, or $8908 into super (after the contributions tax).

It's the same cost from your pay packet, but in super you're giving yourself another $2044 a year working for you.

Super contributions of $8908 a year will be worth $224,000 in 15 years if the fund earns 7 per cent.

You could withdraw $145,000 tax free to pay off the outstanding debt, and still have $79,000 as a bonus.

Yes, a debt-free retirement is possible - just don't leave it too late for compounding to work its magic.