Mal hasn’t been all that been interested in his finances, so his home loan’s interest rate is still 5 per cent and the repayments are drifting along at $1,300 a month.

Until now, retirement has always seemed light years away and he hasn’t given much thought to what will happen when that day finally comes along.

Hopefully, finding out where he is now could help get Mal more motivated. His first step could be to start using a loan calculator.

Mal would quickly find out that his loan has 20 years to go, and that he will arrive at age 65 with a debt of $127,535 remaining. That should be an urgent call to action; luckily he does have a guardian angel – superannuation.

The trick is to take advantage of the different tax rates between money received in the pay packet and money salary sacrificed to super.

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Mal loses 39 per cent of gross pay taken in hand, but just 15 per cent on contributions to super.

Furthermore, money paid off the mortgage is effectively earning 5 per cent, while most good superannuation funds are returning about 8-10 per cent each year.

Mal’s employer contribution should be $11,400 a year, which leaves room for an additional $14,600 to be contributed to superannuation in one way or another. This could be done either by salary sacrifice, which requires the employer’s co-operation, or by making additional personal superannuation contributions.

To keep the example simple, let’s suppose Mal makes personal superannuation contributions of $1,217 a month ($14,600 a year), which should boost his superannuation by $12,410 a year after the 15 per cent contributions tax is taken off. The payments will be tax-deductible, which should lead to a tax refund of $5,700 a year.

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If the additional super contributions put too much strain on his budget, he could use that tax refund to help get by, but a better option would be to contribute it to superannuation as non-concessional contributions. There is no entry tax on such contributions.

In 10 years, when Mal is 65 and ready to retire, the non-concessional contributions should have boosted his super by $87,000 and the deductible concessional contributions by $189,000.

It’s a magnificent outcome.

Instead of facing a debt of about $127,000 when he retires, which could take a big chunk of his employer superannuation, he has boosted his personal super by $276,000. He could then withdraw $127,000 tax-free to pay off the debt, and still have an extra $149,000 in super, in addition to the employer superannuation.

There is a lesson here for anybody facing retirement within the next 20 years.

The actions you take today will make a huge difference to the kind of retirement you are likely to enjoy. The longer you leave it to start the harder it will be.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. [email protected]