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?