Why did I lose my income?
This week we received a distraught call from someone who has just lost nearly all their part-Age Pension.
Let’s call her Susan.
She contacted us to see if we could help reverse this loss of income and agreed that we could share this situation with other Retirement Essentials members so they, too, can learn from her experience.
Aged 69, Susan is a single homeowner who has:
- $260,000 in super,
- $50,000 invested in cash
- Other assets are her house contents and car ($10,000 and $35,000 respectively)
Her current pension is $19,821 ($763 per fortnight). Her entitlement is based upon deemed income of $5847 on $310,000 (super and cash).
She recently received proceeds from the sale of her house for $1.2 million, and after buying a smaller unit, put the balance of $240,000 into super which she believed would keep her within the assets threshold ($609,250 ) and is inside the downsizer contribution cap ($300,000).
But she is astounded that her Centrelink payment has now shrunk to $53 per fortnight.
What went wrong?
Susan asked us what went wrong as she thought she had observed the assets test to the letter.
Susan made two main errors.
Firstly, in selling and repurchasing quickly she did not realise that the proceeds of the sale would be asset test exempt for 12 months, so she did not really need to rush her decision-making.
But the worst impact occurred because she did not know that even if assets are exempt, the income they earn is not. So an income test on these extra assets ($240,000) means that her deemed income is now $11,247 (not $5847), practically wiping out her fortnightly Age Pension income. So we had to reluctantly confirm that her new fortnightly payment is indeed correct.
Can this be reversed?
Susan maintains that she would not have made this move had she realised she was putting her regular Age Pension payments at risk. She is even thinking of withdrawing the extra super to buy a bigger property, but there will be Capital Gains Tax implications on the sale of her new apartment if she moves too quickly.
We have counselled her to take her time and engage with an adviser to come up with a longer-term strategy to allocate her assets and maximise her income more carefully.
Nothing is ever totally ‘unfixable’ in the world of finance, but seeking qualified support can make the difference between a rash move and a well-considered one. Consulting with one of our advisers is a great start.
And if you are unclear in any way about how Centrelink views your particular situation, why not visit our Age Pension Entitlements Calculator to learn more?
For those not on any Age Pension entitlements, how do you view this likely increase? and how are you keeping up with rising prices?
Susan should not have been surprised at all. She did not have to be an accountant or the like just read the rules, they are VERY ckear.
I am frustrated at hearing stories like this and wonder what the authors motive for writing them is.
I believe your example is incorrect, ie the pension reduces by $103.85 per fortnight
Hi Rick, thanks for the fact-check! We’ve double checked the math and are confident our scenario is correct.
Hi I’m wishing to retirement in June 2023 .I’ll be 66yr at this stage I have 170.ooo in super my husband is retired. Hes68yr .iv been told no centerlink that our income needs to be 3300 per fortnight. As a pair .Husband is on income stream. Would I be intoned to a part pension when I turn 67.
Hi Sue, good on you for getting in early so you can plan ahead! It would be best for you to book in a consultation with our Financial Adviser. This way we can understand your individual needs/goals, then help you plan for your retirement from the POV of maximising your entitlements. The session goes for 60mins and costs $330, CLICK HERE to book.
Hi I’m wishing to retirement in June 2023 .I’ll be 66yr at this stage I have 170.ooo in super my husband is retired. Hes68yr .iv been told no centerlink that our income needs to be 3300 per fortnight. As a pair .Husband is on income stream. Would I be intoned to a part pension when I turn 67.iv never commented on this pages before.
Hi Sue. It sounds like it is your husband’s income stream that is affecting his eligibility. As you are assessed as a couple it is likely this will mean neither of you are eligible. If as a couple your income exceeds$3,314 a fortnight you won’t be eligible for the Age Pension unfortunately. Here is a link to the current income thresholds
Great article RE – especially for those who are unaware – we intend to downsize in the future but will be looking for a more expensive property than the current one in order to retain or even increase our govt pension . Cost of a visit to a financial planner is money well spent – got us an extra $95.00 a fortnight in govt part pension
I didn’t realise house contents are classed as assets , so thanks for that.
I didn’t think Susan would have to pay Capital Gains Tax on her unit if she were to sell it to buy a larger property, as Susan has lived in the unit.
I thought Capital Gains Tax only applies to an investment property when it’s sold.
The threshold used by Centrelink is to work who is entitled to the payments, but if someone comes into more money, of course the entitlement will be reduced, they don’t need as much from Centrelink.
Centrelink wouldn’t pay the same amount to someone who has more money than someone else, be it Super, savings or assets.
The super still earns money and means that Susan is no longer drawing on Centrelink as much.
She also now has the option of being able to draw down and spend some capital to increase her Pension incrementally.
The super still earns money and means that Susan is no longer drawing on Centrelink as much.
She also now has the option of being able to draw down and spend some capital to increase her Pension incrementally.
Hi I am turning 65 in January and I would like to throw the towel in & retire. I am the sole earner and have about 350k in Super and 150K in cash. My wife (60yrs of age) is not capable of working anymore & only has $2k in her super.
We will stay in the old family house ( estimated at 1.5million )
What is the best course of action. I want to make the money last as long as I can. I fear that we may have to use it for medical expenses very soon. We only have hospital cover.
Any suggestions will be great.
Do you also help with Wills?
thank you kindly
Hi Gerry, good on you for getting in early so you can plan ahead! It would be best for you to book in a consultation with our Financial Adviser. This way we can understand your individual needs/goals, then help you plan for your retirement from the POV of feeling confident in how long your money can last. The session goes for 60mins and costs $330, CLICK HERE to book.
$10,000 for contents?
Seriously?
I found I was underinsured at $4,000 in the aftermath of Cyclone Tracy in 1974.
Haven’t done a check lately, as the insurance companies bump it up by a percentage each year.
When last I did it, it was somewhere north of $100,000 and that is years ago.
Just think of Fridge, freezer and a washing machine. $2,000 plus to replace them.
TV – most likely over $500.
Computer or two and mobile phone. Could be two, three or four thousand.
Furniture? Think beds, lounge suite, dining suite, book cases, buffets, chests and non-built-in wardrobes and dressers.
All the appliances in the kitchen, plus crockery and cutlery.
Sound system, even an old radiogram?
Vinyl, CDs, DVDs, Blue-Ray. I’ve got lots -seriously. Irreplaceable, many of them.
The list goes on
Must all be insured for replacement value, even if you can’t sell them for that. If not, the insurance, if you ever need it, may only pay the same percentage as what you were insured for as a percentage of the total value.
Something to think about with all these floods and bushfires.
Hi Adrian. Thanks for your comment. You are correct that the replacement value for many people’s content would be well in excess of $10,000. Centrelink however are interested in the money you would get if forced to sell some personal assets to access quick cash. For this reason it is the garage sale value that is most relevant. People who value their assets at the higher replacement value for Centrelink purposes often just end up costing themselves money in terms of reduced entitlements. It is quite legitimate to value your assets at the higher replacement value for insurance purposes and the lower garage sale value for Centrelink.
I am 65yrs, turning 66 in October and will apply for part pension at 66yrs and 6 months. I have $620,000 in Super and $70 in a managed fund. I want to withdraw money from the latter to buy a Hybrid vehicle, cost approx $40,000 within the next 8-12 months. Will that affect any part pension I may be entitled to from Centrelink? Any advice on timing of purchasing the new vehicle?
Hi Christine, well done forward thinking so you can set yourself up as best as possible! It would be best for you to book in a consultation with our Financial Adviser. This way we can understand your individual needs/goals, then help you plan ahead and feel confident in how much you can spend, when, how long will the rest of your money last etc. The session goes for 60mins and costs $330, CLICK HERE to book.
Hello, I will be 65yrs this January 2023. I now live abroad in Malta since 1985. I had started an early pension here in Malta at the age of 62. However was not given my fullest pension as I was told that I will receive an Australian pension which is now due when I am 67 (was 65 at the time).
I did the calculation test and it seems that I do get some pension since I worked in Australia for approx 9 years from 1975-1984. I have no Super. Just own my flat and have savings of approx 30,000 euro / 45,000 AUD . When is the best time to start looking into this and start the application.
Hi Carmen, thanks for joining in all the way from Malta! The soonest you can apply for the Australian Age Pension is 13 weeks prior to turning 67 so still a bit of time up your sleeve. There are 3 important things to know though.
First, to apply for the Australian Age Pension you MUST be living in Australia at the time (you cannot apply from overseas).
Second, as you have been living overseas prior to lodging you will need to remain living in Australia for 2 years before moving back to Malta or anywhere else. If you were to leave the country without meeting the 2 year requirement your pension will be cancelled and you would need to re-apply.
Lastly, should you choose to move back overseas after the 2 year waiting period, your pension will potentially be reduced as it will be calculated based on how many years you have previously lived in Australia as a citizen/permanent resident. If you have previously lived here for +35 years as a citizen/permanent resident then there will be little to no change but if less than 35 it will be reduced. For example, if you were a resident for 10 years, you’ll get 10/35ths of your usual rate.