You’ve decided to downsize from the family home and move into community living. You have picked the perfect retirement village, and even found your ideal villa. Then comes the job of packing up and selling the family home. All big decisions to make!
Then suddenly, you realise that you’ll have money left over from your downsizing move. And while that initially seems like nothing but a positive, in fact this extra cash may have a negative effect on your age pension.
Does this change your mind regarding the move? A quick answer is no, it shouldn’t!
We sat down with Brad Monk, a Senior Financial Adviser from LifePath Financial Planning to talk about the implications for your pension of moving into Renaissance.
While your pension may decrease due to your additional funds, you may be able to offset this reduction with interest you earn from the bank.
Another solution may be the new annuity laws that the government are in the process of legislating. Slated to begin on 1st July 2019, at the time of writing they have still not been finalised. They had better hurry!
Every eligible age pensioner is assessed by two tests: an Income Test and an Assets Test. Whichever test requires the government to pay you the least benefit is the one they will choose. The chart below shows if you are assets tested or income tested.
|
Full Pension until financial assets reach |
Income Tested Until Financial assets reach |
Assets tested until Pension cuts out at |
|
|
Single Homeowner |
$161,231 |
$284,250 |
$564,000 |
|
Single Non-Homeowner |
$161,231 |
$545,750 |
$771,000 |
|
Couple Homeowner |
$282,431 |
$415,500 |
$848,000 |
|
Couple Non-owner |
$282,431 |
$677,000 |
$1,055,000 |
Assumes all assets are financial investments and subject to deeming
Rates and thresholds current at 20 Sept 2018
Once you have worked out whether you are asset or income tested, you can start to consider appropriate investment advice. If you are income tested you may wish to invest in annuities now due to the current deductible amounts they receive. If you believe you will be asset tested, then there is good news ahead for you in July 2019 with the new annuity laws.
The government realises that Australia’s ageing population is increasing the burden on our tax system. That’s why they are looking at ways to encourage us to invest in long term income streams.
The new annuities will have only 60% of their capital counted towards the asset test. For example, let’s say you sell your house for $850,000 and purchase a villa in a retirement village for $650,000. You’ll have $200,000 left over, which will be counted towards the asset and income test.
Under the new 60% rule, if you were to place that $200,000 in a July 2019 lifetime annuity, only $120,000 will count as an asset. This could potentially increase your government entitlement. Obviously, you’ll need to seek financial advice prior to implementing any strategy.
Like everything in life, with annuities there are positives and negatives.
On the negative side it’s true that annuities are not flexible like cash in the bank. However, they have come a long way since they were originally created. Unlike the annuities of yesteryear (where the capital went to the product provider when the annuity’s owners passed away), today some providers offer guaranteed death benefits. This means money will go back to the estate.
You can also set up more than one annuity and in differing amounts, which allows you to close one down if you required the funds. Note that there are financial penalties for closing annuities, so you’ll need to plan carefully.
On the positive side, annuities offer you the peace-of-mind of paying you regular income for everyday living. They pay you an interest rate return, either as set payments or indexed to CPI.
When you’re planning your retirement income it’s important to look at different investment vehicles for differing purposes. Annuities could help increase your government entitlements and provide a regular cash flow. Bring on July 2019!
If you’d like to take a closer look at Renaissance, we invite you to visit us in person.
Our Information Days are a wonderful introduction to the Renaissance lifestyle, in just the sort of relaxed and welcoming environment you’ll experience when you choose to move in.
We’ll help you find the information you need to make the right decision for your needs.
Call Renaissance today on (07) 3820 7700 or get in touch online to find out more about the lifestyle you’ll enjoy at our outstanding Victoria Point retirement village.
This information is of a general nature only and has been prepared without taking into account particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.
Brad Monk is a Financial Planner with LifePath Solutions Pty Ltd whom is an authorised representative of Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.