I am single, aged 67 and my only income is the age pension. My only asset of note is a valuable house. I would like to move, and after transaction costs, should find myself with around $500,000 plus $50,000 in furniture and personal possessions. I understand that as a single I can have $250,000 of assets and still qualify for the full pension but if I downsize I will be $300,000 over the threshold. Is there any way I could invest that $300,000 and be able to qualify for the full pension. If not, I would be terribly disadvantaged by downsizing.
By downsizing you have converted a non-assessable asset, your home, to assessable assets. If you kept the $500,000 in financial assets, and revalued your personal items down to $10,000 which may well be secondhand value, your pension should drop to about $63 a week, which should be $384 a week less than you are getting now. As a result, your income should drop by about $20,000 a year.
However, if you take advice about a diversified portfolio, you would have income from the investments, and you could simply make up the difference between what you are getting now and what you will need, by drawing down on your capital. As your capital reduces, your age pension should increase. The good news is that you would have released the equity in your home and could enjoy the money while you are still alive.
In one of your replies you mentioned there is no gift duty in Australia. I have a friend who wants to give me a large amount but I read that once it hits my bank account they will report it to the Tax Office and it would be taxed. Can you clarify please?
There is no gift duty as such, but the earnings on money gifted will be subject to normal tax rates in the hands of the recipient. And yes, the banks now have stringent reporting requirements and in certain circumstances may report transactions to the Tax Office. However, the reporting itself should not affect the tax treatment.
You have often spoke about the benefits of investing in insurance/investment bonds but I wonder why anybody would prefer them to superannuation when the income tax rate paid by the fund is just 15 per cent a year and withdrawals are tax-free after age 60.
For many people super is not a realistic option. Think about a high-earning professional in their 30s. Any money placed into super would be inaccessible for 25 years or more. But by investing in an investment bond they can still enjoy a low tax environment without loss of access. Then, when the time is right, the funds could be withdrawn from the bond and transferred to the superannuation structure.
Also there are many investors who can no longer contribute to super because they do not meet the work test rules, or because they are aged 75 or more. Investment bonds enable them to enjoy a 30 per cent flat tax rate, no Medicare levy, and no need to create other structures such as family companies.
Investment bonds are also much more attractive for estate planning than super. Money in super is distributed at the discretion of the trustee of the fund and is often open to challenge resulting in years of litigation. A binding death nomination can alleviate this, but the downside is that it may remove the ability of the estate to distribute the funds in a tax-effective manner.
In contrast, money in investment bonds passes tax-free to the nominated beneficiary and is not open to challenge.
My wife's father retired at age 68 with superannuation of $120,000. He owns his house and a holiday unit on the Sunshine Coast. He has told me he would like his two girls to inherit the unit but I am concerned this might not occur. I believe that if he dies the remaining spouse would lose the pension as the government would want the asset sold so the remaining spouse could be self-funded. Is this true and, if so, is there any way the asset can be kept and pension won't be affected?
What you say is partly true but the solution is to take good advice. When one partner dies the surviving spouse might well lose their pension because the value of the holiday unit would be assessed under the assets test, which is much harsher for a single than a couple. The simple solution is for him to leave the unit to his two daughters in his will - it will then pass directly to them and will not affect the pension of the survivor.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Twitter: @noelwhittaker
