Age Pension Trip

Anh and Kim had a dilemma. They consider themselves lucky as they have worked and saved hard to now have more than $1 million in assets and they own their home.  They are both over 67 so can qualify for the Age Pension – except they don’t! Their combined assets are $1,053,500. They don’t earn any income, but they fail the assets test as the cut off point for a part-age Pension for a home owning couple is currently $1,012,500. They are exactly $41,000 over this limit. This means that they are close to getting a fortnightly pension pay cheque – but not close enough. But if they spend the money over the limit – say $42,000 – are they worse off? They would love to have a special family trip to Antarctica – a lifetime memory with the grand kids – and think about $15,000 in renovations will make their home much more suitable to their new life stage of retirement. So should they spend this money. Or should they hold back for a rainy day? That’s the question they posed in a recent maximising your entitlements consultation.

Megan to the rescue

Megan was happy to walk Anh and Kim through their options. Here’s how she summarised them. 

Before spending $42,000.

Anh and Kim were generating a 5% return on their investments of $1,053,500.  This equated to an annual income of $52,675 a year.  They exceeded the assets test so didn’t receive any Age Pension but did qualify for the CSHC.

After spending $42,000

Ahn and Kim’s income from their investments dropped from $52,675 to $50,625.  But they now qualified for a part Age Pension of $2,272 a year.  In total their yearly income is $52,897 which is slightly more than they were getting before.  So they could spend $42,000 on a holiday and renovation and have more income!!  More time with loved ones, a more valuable and suitable home and more income.  Of course the downside is they have $42,000 less in investments.  

For Ahn and Kim it was an easy decision,  They had substantial savings, still in excess of $1m.  They were comfortable that they had enough for a rainy day. Being able to complete their little renovation and still afford the holiday with their children and grandchildren has made them extremely happy.  They chose to spend the money.  

Not everyone will make the same decision as Ahn and Kim.  Many will want the security of that money kept in savings.  What Megan was able to do for Ahn and Kim in a maximising entitlements consultation was to outline their options.  This gave them the confidence to be able to spend some money on things that were important to them without seeing a drop in income due to the Age Pension kicking in.

A retirement forecasting appointment is another way where you can explore two different scenarios to help you assess your options.       

So what do you think you would do in the same situation?  Spend or save?

This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.