17 August 2011

Mortgage and superannuation for single parents

Today I'm featuring an email from a lady who wrote a couple of weeks ago about establishing a life while paying a mortgage and saving for retirement. I think this might be a topic of interest for quite a few readers. She comments here so let's call her Martha.  Martha wrote:

"I became a single Mum almost 4 years ago I realised that my priority had to be to spend nothing so that I could buy another house to bring my kids up in. And it had to have a yard big enough for fruit trees, veggies etc...I bought probably the worst house in a safe area for the kids. I was soooo lucky to achieve this just as the GFC was picking up pace, especially given that I had given up my work (self-employed) to be home with my kids, and was just re-establishing my business. 

My question now is, do I keep trying to pay the mortgage down fast and finish renovating (necessary for health and safety), or should some of my money be going towards super? (I have only about $30000 and I'm 44. My thought is, what if I make us as self-sufficient as possible by saving for solar panels, water tanks etc… and of course gardening and making things - am I deluded if I think I will be able to survive on a tiny amout of super if I'm debt-free and self-sufficient? I really don't think much will be available in the way of pensions when I'm 65 and I wonder what you would do in my position?

My children are 8 and 11. I do support myself with my business (I'm a pianist and teach too, mostly from home). However, without child support and a bit of family tax benefit I wouldn't be able to support my family - unless I took on a lot more work. I was working every other Saturday to try and get ahead financially, but realised this only made me more exhausted and stressed, my kids didn't want me to do it, and it didn't seem to give me extra income in the long run. This is because I had to let the vegetable garden go, stopped baking bread etc...  The good news is, I have no debt other than my mortgage, and a bit of rainy day savings."

Well Martha, the short answer is, yes, you are deluded to think you can survive on that amount of money when you retire if there is no pension then.  And I think that in 21 years time, when you're 65, the retirement age will be closer to 70.  However, you asked what I would do. I think you're doing the right thing, actually. Buying an older home in a good area is what I would have done.  The good news is, if you have no debt and live in your own home with opportunities to grow food and have chooks, you won't need nearly as much as they say you need when you retire. 

I would stop paying superannuation at the moment while you renovate, but in the long term, I think it's wise to continue paying it. Remember, it's not only the lump sum at the end of your working life, there are also tax benefits too. If I were in your shoes, I would to continue to pay off the mortgage as fast as possible, even if some months you can only manage an extra $50. Everything extra is a real bonus.

But you also need to renovate. While you're renovating, buy as much as you can from ebay, demolition yards and second hand shops. There are lots of ways you can cut back, even when you're renovating. It's good you have those "rainy day savings" - that can be your emergency fund while you renovate.

If you're self employed, you'll probably be doing your own payments into your super fund, these may be regular payments or lump sums. As soon as the renovating is over, build yourself an emergency fund, then start regular contributions to your superannuation again. You still have over 20 years you can pay into your fund, taking a couple of years off to get your renovations done won't make too much difference in the long run. The main focus should be to get the home in order, make sure it's safe and sound, and you and your family are too, then start thinking about your retirement.

There is absolutely no doubt in my mind that you and your children will be better off living in a home that you own. If that home is set up to support a frugal and simple life, with vegetable gardens, hens, water tanks and solar panels, you will reap those benefits for many years. But you also need money to pay rates, for the emergencies that will come up over the years, for insurance and for the enjoyment of life. "The Association of Superannuation Funds of Australia, together with Westpac, found that to have a comfortable lifestyle, retired singles who live in their own home need to spend $36,607 a year and couples $48,648." This is from How much do you need to retire?  Hanno and I live on less than that, anyone can - it all depends on what you're will to do without and how much work you can do in your home, while remaining happy, optimistic and strong.

There can't be a definitive answer to the question about how much money you'll need in retirement, because it depends on how long you'll live and no one can predict that. But if you produce some of your own food, if you have set your home up well to support an environmentally sound life and if you live simply, then you will be in a better position to live well than if you didn't have those supports. Don't forget to learn as much as you can about the things that will support you and live simply now. That will help with your current financial situation and when you do retire, it will be a smooth transition to your new life.

This is a really good retirement calculator. You can fiddle around with it and see how much you'd have on retirement using differing super payments. It also gives actions plans and ideas about working longer.

So to summarise, I would: 
  1. stop superannuation payments for the time being 
  2. keep paying as much as possible on the mortgage 
  3. renovate the home on a tight budget, without cutting corners
As soon as the renovation is finished:
  1. build an emergency fund
  2. start paying into the superannuation fund again
  3. keep paying off the mortgage as fast as possible
There are just two points I'd like to add. 1. Make sure all your superannuations is in ONE account. Fragmented super will cost you money. Usually the industry-specific funds give the best returns so I hope you're in one of those. If you have to transfer fragmented funds to one account, know the cost of your transfer fees before you act. 2. Enjoy life as you go along. That is easily done while living simply but you are the sole breadwinner and that can brings responsibilities and concerns that may keep you from the lighter side of life. Look for ways you and your children can spend time together and have fun without it costing a lot of money. Camping, homemade pizza and movie nights,  swimming in summer, hiking in winter - all these things will show your children that enjoyment isn't always bought. It will also give you a break from those sole parent responsibilities and help you see that happiness is still all around you.

That is what I would do. Do you have any thoughts for Martha?



  1. Rhonda,

    Just thought I would add that there is the government co contribution up to $1000 if you are a low income earner. By putting roughly $20 a week towards super, you would receive another $1000. You are still putting something towards super and would be able to pay mortgage and renovations.

    Thanks for a wonderful blog.

  2. I just wanted to remind you that your situation will change as your children get older, and become more independent, and sadly they won't want you to hang out with them all the time, and you may then find you have the opprtunity to go back to some part time work down the track a bit and make a little more money if you want to. Nanette

  3. Hi Rhonda,
    thanks for such a thoughtful post, it's extremely helpful. It was also good to be reminded to have fun with the children as I do find myself at times bogged down with the responsibilities of turning them into fine human beings and trying to keep us afloat financially. I am lucky in that I've been living the simple life for quite a while,and I enjoy it - this is a real blessing. Shopping at op shops was a hard transition for me, but then I discovered that two of the most stylish women I know do it all the time! I was unfortunately brought up to believe it meant poverty, of course now I know this isn't always true.
    For anyone who needs encouraging to use ebay and reclammation yards, I've already saved a small fortune doing this, and found lovvely things like sash windows that just needed a pane of glass and a lick of paint - at a saving of $600!
    thanks again,Rhonda,your blog is one of my life's blessings.


  4. Hi Martha,I am not sure of where you live or the public transport system but after doing the sums not having a car really saved dollars for me. I was a single mother for about 15yrs with a mortgage and for about 10 of those we were carless. The kids didn't like it and sometimes it was hard (a picnic basket sure gets heavy after a couple of kilometres!) but when all is said and done they are a luxury item but most people now will immediately say that they couldn't possibly not have a car. Well in most cases if you live in a city or town yes you can. We lived on an income level for many years well below the poverty line AND paid off a house AND renovated the roof, fences, kitchen, bathroom, laundry and carpet. You can do it and you will be fine. The very fact that you are weighing up your priorities says so.

  5. I am in a similar situation to 'Martha' and agree with most of what you've suggested. However, I'm not a huge fan of superannuation: you have very little control over it and the rules are constantly changing.

    The only thing I would add is that it's worth considering that the skills you have mean you need never 'retire'. I don't imagine piano teachers have a use-by date. So, you'll always have a potential income regardless of your super.


  6. 'Martha', this is a bit off track from super but as a previous sole parent for nearly 10 years I think it is relevant.
    If you don't have a will, make one, and make a member of your family you trust your executor so that the children receive what you want them to if you die.
    If you can't afford super try to afford a minimal life insurance policy, again so that there is something there for the children and whoever you nominate as their guardian if you die. My insurance (I still continue it) is enough to bury me and leaves sufficient to invest for the youngest child's future until they can earn their own money. Their father can contest any guardianship but at least you can make your choices known this way and they will be taken into consideration. Check with your mortgage financer to see if the mortgage has built in insurance. Mine did, which meant if I died the house would belong to my children according to the will and not be sold off to pay the mortgage.
    Do confirm with any potential executor/guardian that they are happy to be chosen for this and talk this through with a, hopefully free, legal advisor as things may have changed since I last updated my information as my eldest children are now adults and I'm in another relationship.

  7. You have so much good info here I don't know what I can add. I was also a single mom and one year we actually got by on $15,000. We learned that no matter what we had planned for dinner if someone offered us garden veggies that is what we were having for dinner along with a small piece of meat, scrambled eggs or cheese and crackers. We were so thankful for the healthy garden veggies. The faster you can pay your home off the better. It is a huge burden lifted and you will breathe a sigh of relief. Try to use the car sparingly. Make all the stops along the way or on the way home. Pay your bills on time so you have no late fees. They add up. Meal plan. We liked the same breakfast each morning and lunch was carried sometimes with leftovers from the night before. Dinner - was what I planned for each Saturday. I looked in the fridge and pantry and used the items I had bought mostly on sale. We had fun! Lots of fun baking cookies, fixing popcorn, and fixing a casserole or meatloaf on the weekends. Oh, we ate quite a few fried potatoes too. We remember those years with smiles. It was also hard at times. Frustrating! But honestly the frustration came from family members not from within our home or money issues so much. I'm excited for you as you take this journey. You can email me and if I can answer questions I'll be happy to. Rita teach4life1@gmail

  8. In addition to Tanya's comments, I read in the latest RACQ magazine (online) last week the costs of running a variety of cars per week. This included not just fuel but wear and tear, insurance, depreciation etc. The savings earned by downsizing into the class below, or buying lower in the range rather than 'top of' are astonishing. Going down one car size could save $80 per week, equivalent to a 9% payrise they say :-O Read about it at their magazine here: http://www.roadahead.com.au/motoring/think-small-save-big-on-car-buying/ We have been talking about getting a larger car simply to deal with our mammoth treks north once per year, but this really does make me think twice about running that car all year round just to help us on a big journey annually!

    Additionally, I have two very wise friends who see superannuation only as a safety net. Don't forget Martha that your home is your biggest asset, and may well become too extravagant/large when your children leave home. It could well afford you quite an income if you downsize it one day.

  9. Hi Martha. You have achieved so many positive things already - good on you!
    A very timely post, Rhonda. The same issues have been on my mind lately.
    My husband & I live in Australia, in our own home & live a simple/frugal life growing fruit, vegies, op shopping etc. We manage to live very comfortably on lessthan $400 per week, which is my weekly gross wage. I have worked out we could live on $200 per week if we had to. It would mean getting rid of the car and all superfluous spending. By renting one of our bedrooms to an overseas student, when we are no longer able to work, we could cover all our costs and have no need for super.

    Our super is very low because we have been low income earners all our lives. We see it more as an 'extra'and have no intention of relying on it. Super is also very unreliable because of changing legislation and, as it is mostly invested in shares, the increasingly changing fortunes of the stock market! We know we could lose all our super overnignt if there is a major economic crash - not an unlikely scenario.

    I suspect you are already doing everything you can. Paying off your mortgage asap and having some savings in a term deposit is a boring but safe path. Investing in solar panels, rain water tanks etc will save you money in the long run. Also, if you enjoy piano teaching & there is a demand for your skill, there in no reason why you should ever retire!

  10. Brilliant thread!So much good advice.. I'm 52 a single unsupported mum for 11 years of 2 children - they are now 19 & 16. I have had a mortgage on a 17 acre sub tropical 2 house bush property, 17km from the nearest shop fro the past 8 years. We haven't lived there for 5 years now as it was financially & time wise better off for us to rent it out & move into the nearest town(which fortunately is a delightful one) for my children's teenage years. We miss living there but will move back when my youngest finishes school. There were many times when I felt like selling up, we were car less for 5 months, all the pumps died at the same time blah blah and I am so glad that I didn't sell - and so are my children. I needed to remortgage twice to get me out of a few fixes but I have a rule that the mortgage repayments are never more than I can rent it out for. I changed my career from midwife to school office administrator so I could work around my children's hours. And yes they do grow up and they need do need you to be around less & less, so your time becomes freed up to work/study/ plant more!
    Having your own block and home is worth so very much.It is more important to me than the 'security' of superannuation funds.
    Rhonda - I love your blog x

  11. Re. renovations: Another good source of building materials is garage sales. We're in a similar position of rebuilding on a small budget and we've picked up some very good buys left over from other people's building projects. It will take a bit of artistic fiddling to bring everything together. So far we've got four different sizes of slate grey floor tiles and an impressive variety of white wall tiles, with the intention of filling gaps left between them with little feature mosaics, from small tiles, bits of pottery, attractive stones, whatever fits in. It also helps to have a bit of flexibility- being happy to make use of what's available. Having a broad rather than narrow view of what you're after helps. Make sure you have an idea of what the "new" price of things is too.
    Get quality stuff wherever possible- it lasts! Secondhand good beats new cheap hands down anytime. And check out what you can reuse from your house. Little things like doorknobs and hinges add up the costs surprisingly fast.

  12. Thanks for all of the wonderful comments everyone! I did consider going without the car but public transport is light on in my town and I couldn't get to work etc...I drive a 3 year old Honda Jazz which only costs $10 to $12 a week in petrol, so this was a great investment. Of course we walk to school and anywhere else closeby.
    As for keeping on teaching, yes, there is a big demand for good teachers in my town - it's just that I'm hoping to eventually have more time for other priorities eg;growing more food, making clothes etc...However, I DO realize what a fortunate position I'm in to have an abundance of work available, and to run my own show.
    PS; Diane, i enjoyed discovering your blog today,and we have a lot in common, particularly the vintage of our bathroom and kitchen!! 'Martha'

  13. I'm not sure if you are ok with links, but I came across a website the other day called 'Mom with a Drill', that you ('Martha') might like. She is a single mother with 3 kids, renovating her house. I was really inspired by what she does in her spare time! She recently finished a feature wall in her lounge room made from (free, I think) recycled pallet wood and it looks amazing! It might give you some ideas for inexpensive renovations.

  14. I can only think of three things to add. Keep up with any health issues that you have. Don't hesitate to get help. Your health is what you are counting on to get you by the rest of your life and to work in a garden you need your health and flexibility etc. Also naturally, get your kids involved with learning about gardening, crooks and all that goes with a sustainable life. All children should learn what life is about and how to take care of it. Also it will be a huge help to you if they can work along with you or even take over an extra chore if you should say come down with the flu. Crooks need fed , gardens need watering etc even when we are sick. That they know what to do will give them confidence . Also try to find like minded friends for your children and you. We all need people we can rely on to have our backs. I think your writing Rhonda and she thankfully answering is great! We all learn by sharing. Sarah

  15. I don't have much to add, but on the topic of renovating on the cheap Sandra mentioned garage sales, and I would also add that the freecycle group, at least in my local area, is a great source of bits of pieces whether it be used furniture or surplus building products you are after, or alternately if you have objects you would like to recycle on to others. As with other cheap methods your options are limited, but if it saves you money all the better :)

  16. It's great that you're looking towards the future and planning things financially. I teach ballet and yoga, so I am also "low income." But, if I keep working until I'm 70, my social security benefits will be $1060. per month. I plan to teach the rest of my life since I enjoy it and like the contact with people. It's great that you walk instead of using the car when you can. I take the bus or bicycle for errands, and have cut my car mileage down to 1,000 miles per year. That way the car will last much longer. I don't know if your gas and electric companies offer assistance to low income customers. Ours do. I receive 20% off my bill and I just found out I am elibible for a new furnace, attic insulation, hot water heater blankets, and hot water heater pipe insulation from our gas company! It's all free! She said I can contact the electric company and that I'm eligible for a new refridgerator, (that's energy efficient,) too. They also provide new air conditioners to people who live in the really hot areas.

  17. Although I worked in a bank for 10 years I don't like giving financial advice, however you could look into your mortgage and see if you would save by paying it weekly instead of monthly. This would be beneficial if your interest is calculated daily, but check with your lender as each mortgage has different rules.
    You would already be saving because if you have a mortgage of $1,000 per month that would be $12,000 pa but $250 per week x 52 = $13000 pa

    Try this online mortgage calculator

    and for more information look here
    http://www.financiallyfree.com.au/mortgage_reduction.htm#Method 3 - Make Weekly/Fortnightly Payments instead of Monthly
    hope this helps

  18. Hi Rhonda

    I've only just found your blog and love what I've read so far.

    To answer your question, it doesn't have to be an either/or answer. I'd put a little towards super (as Nicole said, there's a government contribution to nab), some money towards paying off the mortgage faster, some towards an emergency fund (everyone needs savings) and the rest towards home renovations. Hopefully, the house doesn't need everything done to it at once - as long as the roof/walls/windows are intact and the floor and stumps aren't collapsing, then renovations can be done in stages.



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