Noel Whittaker on your retirement

We catch up with Australia's Financial Wizard of Oz to find out how you can overcome some of the challenges associated with retirement.

  • Finance
  • Read Time: 5 mins

Retirement is often painted as a paradise. While it’s unquestionably a time when you should be free from the stresses and strains of your job, and the pressures of educating children and paying off the mortgage, it is still a time of potential stress.

The problem is there are so many variables. These include how long you will live, the state of your health, the return you may expect on your assets, and coping with the continually changing superannuation, Centrelink, and aged care rules. To make matters worse most retirees don’t know what they don’t know. This can lead to costly mistakes which often involve large sums, at a time when most people don’t have the resources to start again. Here are some potential issues to consider.

The death tax

The death tax on superannuation is 17% of the taxable component of your superannuation that is left to a non-dependent. A partner is always regarded as a dependent, but the tax can have a heavy impact on the estate of a person who is single or whose partner predeceased them. There is a simple way out. Just give your attorney instructions to withdraw your superannuation tax-free if your death appears imminent, and deposit the funds in your bank account. Problem solved!

Taking action without advice

In my book I tell the story of couple who, at age 55, became a 50% owner of a house their daughter was buying to enable her to get finance. The house was worth $400,000. Fifteen later the couple apply for the age pension. Unfortunately for them, the house is now worth $800,000, and their half share is worth $400,000. This, together with their other assets, is sufficient to make them ineligible for the age pension. There is no simple answer – even if they transfer the house to the daughter there will be capital gains tax to pay, and Centrelink will regard the $400,000 as a deprived asset for the next five years. The cost of all this could be well over $200,000.

Misunderstanding Centrelink regulations

There are two tests for eligibility - an assets test and an income test. Every $100,000 of excess assets reduces the pension by $7,800 a year. Many people are not aware that Centrelink assesses items like furniture and motor vehicles at garage sale prices. This would put a maximum value of $5,000 on most people’s belongings. Yet many people advise the replacement cost which could be well over $60,000. Those excess assets could cost $80 a week in lost pension. 

You are tested under both tests and the one that gives the least pension is the one used. Yet, many people wrongly believe that Centrelink may cut their pension by 50% for any additional dollars they earn, and so knock back opportunities to earn extra income.

This applies only to people who are income tested. If you are asset tested the income test is not relevant to you. 

On my website, there are a range of calculators which include a deeming calculator and an age pension calculator. They provide a great resource for anyone who wants to calculate their Age Pension eligibility.

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