Source : the age
I’ve often wondered what would happen to a person on an age pension, like me, who wins big, say $1 million or more. I would pay off my mortgage and use most of the rest to help the kids get into the property market or pay down their mortgages. How much of the win would be applied against my pension asset tests? All of it, or what is left after paying their mortgage and helping the kids?
In much the same way that a portion of the enjoyment of a holiday is the anticipation, dreaming about what you would do should you win the lottery is the primary value in buying a ticket. Sure, it’s effectively just a voluntary tax, but we can’t be rational all the time! So I’m with you on this hypothetical.
Winning big, on the lottery or at the casino, would likely wipe out your pension.Credit: Simon Letch
Should you win the lottery I’d like to think that retaining your pension would be pretty low on your priority list. But to answer your question, the money spent clearing your mortgage would be disregarded, as your home is entirely ignored by Centrelink.
However, the money you give to your kids would certainly be included within the gifting provisions, meaning all bar $10,000 would be considered yours for means testing purposes for five years.
If (when?) you win the lottery, assume you won’t get the pension any more. Only gift what would leave you with enough money to live comfortably.
What is the best way to structure my finances? I have $210,000 in super, own my small home in Sydney and have a one-bedroom unit in Perth from when I used to live there. I want to retain my Sydney home and pass that on to my only child. I am 65, and while I’d like to continue working, I expect I will be forced to retire when I’m 67 as the program I am employed at loses its funding. I am worried about not getting a pension.
Your Sydney home, being your main residence, will be ignored by Centrelink when determining your pension. Eligibility will be determined primarily by the value of your Perth property and your superannuation. This assumes you are not working beyond age 67.
As a single home owner you can have assets up to $695,500 and qualify for a part pension.
Your retirement could be funded by a combination of an income stream drawn from your super, rental income on your Perth property and perhaps a pension if you qualify. Alternatively, you could sell the Perth property and use some or perhaps all the proceeds to boost your super.
Given you lived in the property in the past, it would be worth exploring whether you could access the downsizer provisions to enable you to get more of the sale proceeds into super.
While shifting some of your wealth from property to super won’t immediately alter your pension position, it will likely provide more income for you in retirement, as you no longer have all the costs associated with a property, and have far greater liquidity. At 67, you will draw a minimum of 5 per cent from super, almost certainly more than the rental yield you are receiving after costs.
If you decide to go down this path, consider the capital gains tax position on the Perth property. It may mean that you would be best served delaying the sale until after you have retired.
Paul Benson is a certified financial planner at Guidance Financial Services. He hosts the What’s Possible? and Financial Autonomy podcasts. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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